Charts & technicals
What are support and resistance?
Support is a price area where buyers have repeatedly stepped in; resistance is where sellers have. They work because they are memory: people who bought at a level defend it, and people trapped above one sell into any return to it. They are areas, never exact lines, and on a token with no history there is nothing for that memory to be made of.
Why a level does anything at all
There is nothing magic in a number. A level matters because positions were opened around it. Buyers who got in there will defend it; buyers trapped above it will sell into a return to break even. Support and resistance are a map of where people are stuck, which is why the levels with the most volume behind them are the ones that hold.
Drawing them without fooling yourself
- Use areas, not lines. A level is a zone a few percent wide, because that is how the reaction actually happened.
- Prefer levels with volume. A wick nobody traded is not a level.
- Fewer is better. If your chart has nine levels, one of them will always be nearby and none of them is information.
- Draw them on higher timeframes first. A level visible on the 4-hour matters more than one visible only on the 1-minute.
Flips
Broken resistance often becomes support, and the reverse. The mechanism is the same memory: everyone who sold at the level watches it break, and buys the retest they wish they had taken. The retest, not the break, is where the risk-to-reward is usually best.
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