What are support and resistance levels and how to identify them❓
Support and resistance levels are price levels on a chart where upward and downward forces (supply and demand) are positioned opposite each other.
Therefore, these levels are determined by market participants.
Traders often pay close attention to these levels, as they can be helpful in predicting future price movements.
In this article, we will show you:
👉 What are support and resistance levels in trading
👉 How to identify support and resistance levels
👉 Types of support and resistance levels
👉 How to draw support and resistance levels in MetaTrader
👉 Support and resistance levels using Fibonacci reduction
👉 Support and resistance levels using pivot points
👉 How to trade using support and resistance levels
What are support and resistance levels in trading?
Support and resistance levels are levels where prices stop and then start moving in the opposite direction of their previous trend. In other words:
💪Support: A level where prices stop falling and start rising again.
👊🏻 Resistance: A level where prices stop rising and start falling again.
The main difference between support and resistance levels is the direction of price movement.
The more often the price behaves at these levels over time, the easier it is to predict future price movements.
This is further strengthened by the fact that support and resistance levels are considered psychological levels; traders buy or sell at these points, which helps to strengthen them.
Support and resistance levels are useful for:
⤷Anticipating which direction the price is heading.
⤷Deciding when to open and close a trade.
Not all support and resistance levels are equally important. For example, in an ascending channel, we will give more importance to support than resistance, because a breakout above it may indicate a trend reversal.
How to identify support and resistance levels
Every day, many new traders start their trading day in the world's largest financial market, the Forex market, where $7 trillion in daily volatility is traded, and they try to profit from that volatility.
Usually, these traders do not trade very risky, but what they should do is conduct a thorough analysis of the Forex market. Then the question arises of how to calculate and identify support and resistance levels.
The market has its own rhythm. Rather than trading based on intuition, it is better to identify the underlying movement of a currency pair and then trade. Technical analysis is a preferred method among traders to build their trading strategies. This method is based on the idea that "history repeats itself", so it gives the greatest importance to historical price data.
After a thorough technical analysis to identify support and resistance levels, you will find different values for these levels, which you should consider before trading.
You can learn more about this in our technical analysis manual.
Types of support and resistance levels
We can divide support and resistance levels into three types:
Fixed
Dynamic
Semi-dynamic
Fixed support and resistance levels
Fixed levels are support and resistance zones that do not change. This level will always exist, as the price can potentially return to it in the future.
To identify stable support and resistance levels, you should pay attention to the following:
➜Psychological price levels
➜Yearly highs and lows
➜Candle highs and lows
➜Candle opening and closing prices
➤ Forex support and resistance levels are approximate, not precise zones. While the support or resistance at 1.10000 will not change, its impact is not only noticeable at 1.10. In fact, the price can turn in the opposite direction and bounce around 1.10 at points such as 1.0975 and 1.1025. This should be taken as a guide.
Now let's focus on psychological levels because of their importance.
Psychological Support and Resistance Levels
👉🏼 Often, when there are multiple zeros at the end of a price, the price will test specific support and resistance levels, because traders, especially in Forex, like to move around whole numbers. These levels are called "psychological levels."
👉🏼 When a trader discusses the future price of the Euro, they will probably not give an answer like 1.18132 or 1.20045. They will probably round out their price prediction to something simpler, like 1.18000 or 1.20000.
👉🏼 Typically, the most common psychological levels are those that end with two zeros, such as 1.1800 or 112.00. However, the strongest levels are those that end with three or four zeros.
👉🏼 Let’s take an example using the EUR/USD currency pair. We’ve chosen some psychological levels like 1.10000, 1.11000, and 1.12000.
In fact, these levels have acted as support and resistance many times in the past, as can be seen in the chart below:
Dynamic Support and Resistance
Dynamic levels are support and resistance zones that change. If you don’t know how to identify these new support and resistance levels, don’t worry; each time a new candlestick or bar appears on the chart, the zone is automatically recalculated. Indicators such as Moving Averages, Parabolic SAR, or Keltner Channels are used for this purpose.
Support and Resistance Lines
Source: EURUSD, H1 Chart, MT5 Admirals. Please note that past performance is not a reliable indicator of future results.
You can also use the Support and Resistance indicator in MetaTrader 4.
How to Draw Support and Resistance Lines in MetaTrader
You may be wondering how to draw support and resistance lines. It's very simple. In MetaTrader, click Insert, then Objects, and then select the type of line you want to use.
You can also select them directly using the shortcuts located in the upper right corner of the platform.
How to Draw Support and Resistance Lines
After selecting the type of line you want to use, draw it on the chart. Support and resistance lines can be diagonal or straight.
What you can do:
✔️ Create horizontal support and resistance levels by identifying past highs and lows
✔️ Identify uptrends or downtrends by connecting highs and lows with trend lines or channels
✔️ Draw support and resistance levels on a psychological level
✔️ Use trading indicators. Many of these will highlight important levels for you without having to manually draw support and resistance lines.
Fibonacci Support and Resistance Levels
Fibonacci is a sequence of numbers where the sum of the previous two numbers is a new number, such as 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.
These numbers have been used to calculate target and entry levels, which is a good way to identify support and resistance levels in the stock market.
Each Fibonacci retracement level can act as both resistance and support. Keep in mind that Fibonacci is only used in trending markets and should always be drawn from left to right.
Fibonacci Resistance and Support Levels in Trading
Source: USDCHF, H4 Chart, MT5 Admirals. Data range: May 13, 2020 to July 17, 2020. Please note that past performance is not a reliable indicator of future results.
Each Fibonacci retracement level can act as both resistance and support.
Support and Resistance with Pivot Points
Pivot Points is an automatic support and resistance indicator for MT4. Adding it to the chart automatically creates support and resistance levels.
Pivot Point Support
Source: USDCHF, H4 Chart, MT5 Admirals. Data period: July 16, 2020 to August 12, 2020. Please note that past performance is not a reliable indicator of future results.
How to Trade Using Support and Resistance Levels
The approach when trading is to use support and resistance levels on multiple timeframes. While traders can use any timeframe they wish, working with three charts is a good approach.
More than three timeframes often becomes confusing, and fewer than three provide less depth and insight.
The three timeframes can be categorized as follows:
Upper
Middle
Lower
The three timeframes used largely depend on your trading style. Naturally, a long-term trader will use a different type of chart than a day trader.
The mistake is to think of support and resistance as specific single lines, rather than zones. In reality, price rarely reverses at an exact point—it reacts within a range (for example, 1.0975 to 1.1025 instead of exactly 1.1000).
Beginners often place trades too precisely, which leads to false breakouts or premature stop losses. Smart traders think about zones instead.
You should also pay attention to price behavior and momentum. If price approaches support or resistance with weak momentum and starts to reject, the level is more likely to hold.
However, it often indicates that the level may break and turn into the opposite role (support becomes resistance or vice versa).
Using multiple timeframes allows you to see both the big picture and the finer details.
Shows strong long-term support and resistance, while lower timeframes (such as 1 hour or 15 minutes) help find the right entry point, which increases the chances of a successful trade.
Below, we detail the chart types by timeframe and trader type:
Timeframe: Upper, Middle, Lower
Trader Type: Long-Term, Swing Trader, Intraweek, Intraday, Scalper
Upper Medium Lower
Long-Term Monthly Chart Weekly Chart Daily Chart
Swing Trader Weekly Chart Daily Chart 4-Hour Chart
Intraweek Daily Chart 4-Hour Chart 1-Hour Chart
Intraday Daily Chart 1-Hour Chart 15-Minute Chart
Scalper Daily/4-Hour Chart 15-Minute Chart 5-Minute Chart
Upper Timeframe
These are best suited for identifying important resistance and support levels that are strong enough to stop a trend or sudden price action from continuing.
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