Support and resistance are the keys to determining a price level for traders to enter and exit. These are important points that force the levels of supply and demand to determine the future level.
We are prepared to guide you through four steps, and we promise you that after reading this blog you’ll be able to draw support and resistance levels without difficulty.
After all, young traders in India need proper guidance and procedure to follow through so that they can draw proper support and resistance lines.
Support and Resistance levels form an important part of a trader’s technical analysis plan that helps in deriving the buying and selling level.
The support level produces support for the buyers to enter the market, whereas the Resistance level resists a certain level to help sellers enter the market.
Understand that the support and resistance levels identify the probability of halting at a level or changing its direction. The levels can be attained through a specific price or price area.
According to experienced traders, support and resistance levels are best used with other indicators such as moving averages convergence and divergence (MACD), trendlines, Fibonacci retracement etc. You can have a look at the figure above to understand the S&R movement with the macd indicator use.
However, one must first learn the basics of drawing support and resistance levels.
Let’s look at these 4 steps and draw side-by-side to have a clear understanding of the process …
There are different articles on different ways to draw support and resistance levels. However, one must be able to try it to see if it works ...
We came up with 4 steps which are a powerful, yet easy way to draw S&R resistance levels. Let us outline the process for you:
2.1 Select your preferred chart
Firstly, you need to select a chart as your preferred type which can be candlesticks or any other,
Here, we are choosing a candlestick chart.
We have selected a candlestick chart to determine the S&R levels.
Common now. Don’t just read! Get on with the steps and apply.
2.2 Analyse the support and resistance zones
In the candlestick chart, you should analyse the support and resistance zones to draw the perfect levels.
The resistance zone in trading is the price range on rising security and is predicated on the higher side of the chart. In this zone, the uptrend is in slow momentum and can rebound from that area.
The support zone is the price range on the lower zone and is predicted on the lower side of the chart. It is a zone where the downtrend is expected to pause for a rebound from that area.
The next step is to determine the support zones and resistance zones. As per the above figure, you can observe the price level at 36 is acting as a support zone whereas the price level of 37 acts as a resistance zone.
The zones are always marked in the broader chart where you can find similar pauses in prices in a certain area.
When you identify the zones, it is time to mark the highs and lows of that stock.
2.3 How to Identify Swing High and Swing Low
Swing highs and lows are the terms used in technical analysis to determine a peak reached by an indicator or a decline derived by an indicator respectively.
A swing high is developed with a higher price and a swing low develops when the price hits its low. It is a great way to analyse trends in the market.
Further, you need to identify the highs and lows that you observe on the selected chart. You can scroll back to observe the previous price as well.
Now, you must draw a line at every high and every low you see on the chart.
When you identify the highs and lows, it should look like the figure above. Highs and lows are marked to identify different support and resistance levels on the S&R zones of the chart.
3. Add Lines to Connect the Highs and Lows
After identification of the highs and lows of the chart, it is time to connect them using horizontal lines.
When you connect the highs together and lows together in a single horizontal line, the highs act as the resistance levels whereas the lows act as the support levels.
As represented in the figure above, the connectivity of the horizontal lines is support and resistance levels. Although, joining 2-4 lines is enough for analysing the support and resistance levels as it is much cleaner and more understandable.
Remember! Join the levels only if you find more than 2 or more highs and lows in a straight line. The major support and resistance levels will be always joined with previous prices of highs and lows.
Also, the drawing of S&R lines works great on anytime frame.
Always make sure that there are more highs and lows, as this indicates the zone's stability and dependability.
Step: 1 Select a chart type – e.g., candlestick chart
Step: 2 Identify the support (lower price zone) and resistance zones (higher price zone)
Step: 3 Mark all the high prices as highs and mark all the low prices as lows
Step: 4 Connect the highs and lows to determine the support and resistance levels.