Trader Lab · Technical analysis
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Support and resistance: where price stops, and why
Support is a level where falls stop because buyers step in; resistance is where rises stop because sellers step in. It is the simplest tool in technical analysis and the most used, because thousands of traders watch the same levels.
75%+ of retail investor accounts lose money trading CFDs.
Finding the levels
- Start on the daily or 4-hour chart; levels there are stronger than on small timeframes.
- Look for places price turned two or more times and draw a horizontal line through them.
- Treat it as a zone, not an exact price. Markets rarely respect the same number to the pip.
- Keep three or four levels near the current price at most.
Round numbers
Levels such as 1.1000 on EURUSD or round hundreds on gold attract orders because many traders put targets and stops there. A round number that lines up with an old turning point is a stronger level.
Resistance becomes support
When price closes clearly above resistance, it often comes back to test it from above, where it acts as support. Break, retest, rejection candle: one of the best-known entries. The same works in reverse below broken support.
Bounce or break
| Case | What you see | Common approach |
|---|---|---|
| Bounce | Price touches the zone and a rejection candle forms | Enter with the bounce, stop beyond the zone |
| Real break | Clear close beyond the level, then a retest | Enter on the retest |
| False break | Quick push through, then back inside | Wait for the candle to close before acting |
Rejection and engulfing candles: Japanese candlesticks.
Where to put the stop
Beyond the zone, not on it: below support with room for the spread and normal swings, or above resistance. If that makes the stop far, reduce size instead of moving the stop closer. The maths: lot size calculation.
Common mistakes
- Drawing a level from a single bounce on the 5-minute chart.
- Selling into a strong uptrend just because resistance is near.
- Ignoring the calendar: strong US data can break the best level in minutes.
Questions
How many touches make a level support?
Two or more on the 4-hour or daily chart make a level worth watching. More touches on a higher timeframe mean more traders are watching it.
Is support a line or a zone?
Treat it as a zone. Price can poke slightly beyond a line and still bounce, so place the stop beyond the whole zone.
How do I know a breakout is real?
Wait for a clear candle close beyond the level on your trading timeframe, ideally followed by a retest. A break that snaps back inside quickly is often false.