Support and Resistance Learn How to Draw and Identify Key Levels Unlocking Trading Opportunities

  1. Technical Analysis
    1. How Technical Analysis Can Help You Make Informed Decisions in Mastering Stock Trading
    2. Technical Analysis Setting Realistic Expectations
    3. Introduction to Technical Analysis and Assumptions
    4. Technical analysis for Profitable Trades Analyzing Open, High, Low, and Close
    5. Candlestick Charts How Line and Bar chart Enhance Market Analysis
    6. Japanese Candlesticks History, Anatomy From Ancient Japan to Global Trading Phenomenon
    7. Time Frames in Technical Analysis Unlocking the Power of Choosing the Right Interval for Successful Trading strategy
    8. Candlestick Patterns How to Identify and Interpret Trading Signals
    9. Marubozu and Bullish Marubozu Understanding What is Essential Single Candlestick Patterns for Traders
    10. Marubozu Candlestick Setting Stop Loss The Ultimate Guide to Trading Patterns
    11. Spinning Top Candlestick Navigating Downtrends A Trader’s Guide to Identifying Reversal Signals
    12. Spinning Top and Doji How to Interpret and Navigating Market Uncertainty
    13. Paper umbrella and hammer candlestick pattern Unlock Profitable Trades
    14. Hanging man candlestick pattern Profitable share market trading Strategies
    15. Shooting Star Candlestick Pattern Boost Your Trading Success Guide
    16. Engulfing Patterns and Bullish Engulfing Signals Unlock Trading Opportunities
    17. Bearish Engulfing and Doji for Trading Success Profitable Strategies with Candlestick Patterns
    18. Multiple Candlestick Patterns Insights and Strategies Boost Your Trading
    19. Bullish Harami Candlestick Pattern for Trend Reversal Strategies
    20. Shorting Guide using the Bearish Harami Pattern Trade Reversals with Confidence
    21. Morning Star Candlestick Pattern and Gap Analysis To Maximise Your Profits
    22. Evening Star Candlestick Pattern Learn How to Identify and Trade to Boost Your Trading Success
    23. Support and Resistance Basics A Comprehensive Guide to Setting Targets and Navigate the Markets with Confidence
    24. Support and Resistance Learn How to Draw and Identify Key Levels Unlocking Trading Opportunities
    25. Support and Resistance Advanced Trading Strategy Analysing Reliability and Optimisation
    26. Volume Trends How to Leverage for Successful Trading Strategy
    27. Volume Analysis A Key Checklist for Successful Stock Trading
    28. Moving Averages A Comprehensive Guide for Trend Analysis in Stock Trading
    29. How to Use Moving Averages for Profitable Trading Strategy and Potential Opportunities
    30. Moving Average Crossover Boost Your Trading Success with A Reliable Strategy
    31. Technical indicators How to Use Technical Tools for Better Decision-Making Unlocking the Power of Trading
    32. Relative Strength Index RSI Analysing Overbought and Oversold Signals to Boost Your Trading Strategy
    33. MACD How to Interpret and Utilize Moving Average Convergence and Divergence for Profitable Trading
    34. Bollinger Bands The Power of Indicators in Trading and checklist
    35. Fibonacci Retracements Unravelling the Power in Stock Markets
    36. Mastering Fibonacci Retracement A Step-by-Step Guide for Effective Trading
    37. Dow Theory Decoding Unveiling the Principles of Technical Analysis
    38. Dow Theory Patterns Unlocking Trading Opportunities with Double and Triple Formations
    39. Trading Range Explained chart indicator example strategy Profit from Market Ranges
    40. Flag Pattern and Range Breakout How to Capitalise Trading Beyond Boundaries
    41. Risk reward ratio Understanding RRR in Dow Theory
    42. Technical Analysis Tools for Traders Charting Software Guide Enhance Your Trading
    43. How to Select Stocks for Trading Success and Building Your Opportunity Universe
    44. Short Term Trading Unleashing the Power of Scalping Strategies
    45. ADX Indicator and 7 more indicator tools for Trend Strength Analysis
Marketopedia / Technical Analysis / Support and Resistance Learn How to Draw and Identify Key Levels Unlocking Trading Opportunities

Construction/Drawing of the Support and Resistance level

Here’s how you can identify and construct the support and the resistance line:

Step 1- If you’re attempting to pinpoint short-term support and resistance, a minimum of three to six months of data should be loaded; if your goal is to find long-term S&R, then opt for twelve to eighteen months’ worth. With such an abundance of points on the chart, it will appear somewhat constricted or ‘squeezed.’ 

  1. Long-term S&R can be beneficial for those employing swing trading strategies.
  1. Short-term S&R can be beneficial for trades taken on an intraday basis as well as those made within the same trading session.

This chart displays the information from 12 months of data points. The data points have been plotted on this chart.

Step 2- Identify three key price action zones on the chart. These “sticky points” show a price pattern

  1. Hesitated to move up further after a brief up move
  1. Hesitated to move down further after a brief down move
  1. Sharp reversals at a particular price point

This set of charts outlines three things in succession:

The chart below shows that after a brief up move, prices appear to hesitate and remain static. The encircled points signify this moment of inactivity.

The chart shows the encircled points representing a stagnant price following an initial decline.

The encircled points on the chart point to sudden price changes.

Step 3) Spot the price action zones – Take a look at a 12-month chart, and it is possible to identify multiple price action zones. Aim to find at least 3 of them that are located at the same rate.

Here is a chart that identifies two different price action zones, which are not at the same level.

Examining the chart, I’ve highlighted three areas that are around the same cost levels.

It is essential to ensure price action zones are placed at a length apart for identifying support and resistance. For instance, if one is determined on the 2nd week in May, then it would be more valid to identify the next one no earlier than 4 weeks later. The further apart these areas are, the stronger the representation of S&R levels will be.

Step 4) Draw a horizontal line – Connect the three price action zones with a straight line. The location of this line in relation to the present market price will determine whether it is viewed as support or resistance.

Take a glance at the chart

Beginning from the left, 

  1. The first circle emphasizes an area where the price drastically turns around.
  1. The 2nd circle marks a region where the price tends to stick.
  1. This third circle marks a region where an abrupt change in price occurs.
  1. The 4th circle marks an area of price action where prices remain sticky.
  1. The 5th circle focuses on the current value of Cipla, which is 442.5.

The graph above presents the 4 price action areas, which are relatively near to one another, with 429 being the lowest. This figure is lower than the current Cipla market price of 442.5, thereby making it an immediate support zone.

Be aware that if you use Technical Analysis to identify support and resistance, there is a possibility of an incorrect estimation. It is important to take into account that prices are generally reflected in a range and not just one price point. In other words, it can be seen as a zone or region that serves as either support or resistance.

Based on the above logic, a reasonable support region for Cipla’s stock price would be between 426 and 432. I arrived at this range by adding and subtracting 3 points from 429.

This graph presents the S&R of Ambuja Cements Limited.

Currently, Ambuja is trading at 204.1, with support at 201 (below current market price) and resistance at 214 (above current market price). For traders who are shorting the stock at this price, they may want to look for a target of 201, which is based on the identified support level. Meanwhile those who are looking to go long can consider a target of 214 derived from the resistance point. This could be a good intraday trade opportunity.

We can identify at least 3 distinct price action zones in both the support and resistance levels, spaced out over time.