How to draw support and resistance lines, using the support and resistance trading strategy

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How to draw support and resistance lines – the very basics

Understanding support and resistance is very important in trading. In fact, arguably, support and resistance are the most widely followed technical analysis that there is. They are levels that are eyed, by, virtually, every single serious trader in the world, who would be aware of key support and resistance levels. So, let’s just go through the very basics.

A support level would be a place where a price has reached and has then been rejected from. So you can see here on the charts, here is a support level and it’s at the 1.3750 level and at the 1.3700 level. Often you’ll find that key support and resistance levels are at big round numbers, 00 or 50. That’s a support level here, on the Pound/US dollar daily chart. If you also look up to the top you will see here the 1.4350 level. You have another key resistance level. So you can see that when price breaks through significant levels, it’s really important, the market pays a lot of attention to it because, you see, it’s no coincidence here, that there was a big solid rejection and breakthrough of this 1.3700 level. The 1.3700 handle was broken and it was through the 200 moving average as well on the daily chart. Big significant move on that day.

One of the areas, and it’s the area that I want to focus on, is an area that beginner traders often get confused with. And the way they get confused is, they still don’t understand how to draw support and resistance level, so let me give you an example of how new traders get confused. They might see the level and think, Okay, say take this over here, say, is the level here, is the level there or is the level here? But there’s three different places and you might hear some people saying, “Oh, you should always draw a support and resistance level on just the bodies of the candle, that would be the way to correctly draw it.” Or some people say, “No, you need to draw the resistance or support level, at the actual swing point, that’s the correct way to measure the level.” Now there is obviously merit in both of those views, but more often than not, they just create confusion, particularly for the beginner and the new trader.

So what you need to do, is you need to change the way you think about support and resistance levels. So, instead of thinking them about a very specific level, like you might have drawn your level here and said, “Right, here is the resistance level. It’s this high here, is 1.427, whatever it is, that’s the resistance level.” And the problem with viewing it so micro-focused on just 1 digit or 1 point of a movement, is that you’re missing the big picture and actually if you saw that resistance level not so much as a level, but as a zone, you would have done a lot better.

So, if you would have drawn, kind of a zone like this, you could have seen, “Okay, this is a resistance zone.” So the way that I think of it and it helps me, imagine a very fat man and his belly is overhanging his trousers. Now, if you have got your hand, not that you want to, but if you have got your hand and if you pushed your hand into that fat man’s belly, at first it would be quite easy to push in, because you’re pushing through the external and exterior levels of fat, but as you get deeper into the man’s belly, eventually, you kind of get a push up against something that’s firm and solid. That’s exactly the same with support and resistance. Think of them as zones, like a fat man’s belly zones, so that when price approaches a level, you’re on the lookout, but you’re not necessarily overly focused on one particular point. So that’s a really good way of looking at it. It will help you and, particularly for beginner trader, don’t think so much of support and resistance levels, but think of support and resistance zones.