 Hi, my name is Liam Rowe currency trader and trading coach at trading 180 comm and welcome to this video on support and resistance now what is support and resistance support resistance is used by traders to identify areas on a price chart where There are buying and selling opportunities So you have Horizontal support and resistance you have diagonal support and resistance Which is things like trend lines and I'll be talking about that in another video and also things like Moving averages as well moving averages or what you would call dynamic support and resistance and again I'll be talking about that in a another video, but we're gonna be focusing on the Horizontal support and resistance and how to plot horizontal support and resistance and pretty much why they're used and how to trade them so again support and resistance are used by traders to identify areas on a price chart and locations on the price chart where They want to do business and this is based on historical price Reacting at that price as well. So if this was a price chart and What you have is areas where prices will come up to a level or down but in this case up to a level and then you will have a strong rejection So this is gonna be price here and you have different levels and then So this area and these areas Would be used as what we would call resistance because price is being resisted here So price has been resisted here price has been resisted here And here and then what you would have is Things like support so support would be where price is being supported. So think of support as the floor and Think of resistance as the ceiling. So Based on past price action So imagine we were looking at this in real time. We hadn't necessarily Seen what was coming into the future so prices will come up Right and that was real time when prices gradually make their way up What traders would assume is that because prices had been rejected here that The same may happen or there's a probability or a likelihood that the same thing will happen again Currently so they would project that prices come up to this level and then there's a 50 50 60 70 percent chance That prices will do that again in the present So they would look to the past and look to the go back through the charts and see how prices reacted at that level historically and then try to capitalise from that In the present and hopefully price does have the same reaction. So the strongest levels of Support and resistance. Let me just clear all this up So the strongest areas of support and resistance are Areas where you can see a lot of buying or a lot of selling coming into the market and Historically so again, if prices are moving up and then all of a sudden we have prices move down That becomes an area or this area becomes an area of interest All right, so this is okay. Well, there was a lot of selling at this point So let's do it from the buying side and it would look like this from the buying side So price may be coming down like this and then all of a sudden you get a lot of buying prices move up So that would become, you know, this would be an area of potential support We have no idea whether this is going to be support Don't know I put SP Let me just take that off sir. Yes, you Pete This is support All right, because price is being supported now when price again comes down into this level We're looking for the same thing to happen the same reaction to happen and again the same thing with resistance, right? Yes So Again, the strongest areas of support resistance to where price has been rejected like kind of like hard in and hard out as I would say so it comes into a level and then comes out That's what you want to see. You don't want to see price coming into a level me You don't really want to see prices coming up into a level where it's like it's like this You know slowly slowly and then You want to see something like this and something like that on a price chart And that is basically evidence of a lot of selling or a lot of buying in the market So With support and resistance the second touch of a level is what we would call confirmed support and resistance So we don't know that this is Resistance for example at this level is resistance here. We have no idea So we have no idea that this is resistance We know that price has been rejected there But what are the what is the likelihood that that would be that would happen in the future now? What they were called an aggressive entry now traders who are quite aggressive Because you've got aggressive traders and you've got more conservative traders Would look to this zone and then they would use that as a go obviously the area that they would look to maybe sell and Depending on whether they've got some other Confluences or indications that this is going to be a sell trade then they would Look to actually sell and hopefully price goes in their direction but we can't call this an area of resistance until price has been Resisted because prices could easily just continue going Higher so we could be in what they call a trend so this could be making a high a Higher low and this price could actually just go straight through so until prices have actually reacted from this level and Look like they're going down and been rejected then we can actually confirm that this area is a level of resistance and the same thing with Support so let me just get rid of So support would be the same thing We have a rejection now We're on alert at this level to see if price does come back into that level if price does come back in here and price does react Then We have a confirmed level of support So it's usually on the second touch It's always on the second touch that you can say that this is a confirmed level of support because we actually don't know whether Prices may continue going through that level. So when plotting areas of and levels of support and resistance The level should be obvious for you know pretty much everyone to see so what you don't want is a level where it is quite ambiguous and and Not obvious because if it's not obvious Then there are not going to be traders at that level traders like for support and resistance is traded by You know the big institutions Retail traders. It's pretty much the foundation of most trading strategies most technical trading strategies, so When looking for These types of areas as far as support and resistance what you want to do is you want to trade In an area where there's going to be a lot of buying and selling activity And if it's not obvious that there's going to be a lot of buying and selling at that At that area and you're basing that off of history and historical facts Then the that's an area that you don't really want to be looking at look at obvious areas of Support and resistance and what we're going to do is we're going to go to the chart next and I'm going to show you exactly what I mean And we're going to be I'm going to be showing you how to plot the best levels of Support and resistance so this is the daily chart on the US dollar Japanese yen pair and We can see some interesting areas of support and potential potential support and resistance, so First of all whenever we're drawing support and resistance on a price chart What you want to do is draw the Areas as zones There's a temptation to draw them as lines and you might see them drawn as lines You know and in other videos But just my advice is to more draw them as zones and the reason why is because the market is really not perfect as far as You know prices when they basically ping off of a level let's say for example here To draw Prices as a line Doesn't do the area justice you may miss out on Quite a few trades if for example price didn't actually come up if you're waiting for price to Reach this exact zone and it's exact line. It's exact price of 114.381 and Prices came up, but didn't touch that area because that happens quite a lot You may miss out on a trade depending on how you trade whereas if you draw it as an area then you have quite a wide Zone with which to look for price to come into and Look for a trading opportunity so Trading is is is a science and it's an art. It's a balance It's very so it can be very subjective or it is very subjective matter of fact To you how I draw and where I draw my support support and resistance zones Maybe slightly different to you and you'll be different to Different traders, but as far as the exact areas, but What isn't going to be different is how obvious the level of support and resistance is To traders they are You know once you know how to plot support and resistance and what you're looking for then It becomes quite easy to to see so Draw them as a zone. There's no exact correct way to You know to draw room people do develop different techniques But as long as you're looking for an area where you want to do business then that is what matters so What you want to do So support and resistance are zones So what we want to do is identify first an area of rejection in a strong area of rejection So what you want to see is let's Get a tool and So you can see is you know, basically like the hard in hard out movement That's what you want to see to the upside for Resistance and then you want to see something like this and then something like that to the downside and that would be a potential level of Support and this would be a potential level of Resistance so if price does come back up into this level here aggressive traders will look to enter on the first touch and then if this does become resistance Then that is a confirmed level of resistance. This isn't confirmed until price really Is supported or resisted by price on the second touch so Going back to candlesticks So we identify an area of Potential resistance so in real time. This is what we would have seen We would have seen that area there and we would have When prices came back up into that area of potential resistance We do see prices You know react to that level now As an added bonus what you also want to see if you don't necessarily know that this is a Potential level. Well, it's always a potential level of resistance, but You what you want to do is look to the Historical side of the chart to see if this level has been traded to give you a bit more Confluence in taking this trait so What I mean by that is you want to scroll to the left of the chart Right and see if this level had been traded and reacted to and this price Had been reacted to a few times in the past and that would give you more Confluence to maybe trade this on the first touch of this level so What we want to do is probably just extend This level here and look back in the past and see if this level had been used or had been traded as a Resistance level in the past you can see That it actually had so you can see prices came up Resisted prices came up resisted prices came up again Had been resisted a few times again right here When prices came back into this level we got a reaction here We got another reaction a few reactions in a few for a few days prices couldn't break through prices eventually broke through the level Prices come back it would act to the resistance there acted as a bit of resistance here so when prices did come up to this level and then Were rejected Because you know in the past that traders had Seen this level as a level of Resistance and it had been used as a level of resistance in the past that will give you more Confluence to actually take the first touch of this new level Or potential new level of resistance, so If you wanted to enter a trade earlier, then that would give you the confidence whereas if you had Looked to the past and let's say for example this level hadn't been used as a level of resistance before Then what you would probably want to do is be more conservative in your approach And you would probably wait for confirmation of this level to be a level of Resistance and then you would probably wait for price to come back up into this level here again To this level here again and then Because this would be the confirmation of the level because if price hadn't Have been used in the past it has hadn't been an area in the past then We don't have that Historical pattern and what we're looking for is patterns within the market That have that are basically repeating themselves So if this has been repeated then chances are that this would be a good Location to try and get short on the first attempt back up into this level if this price Historically had not been used in the past, but we did see a strong rejection then The safest way to trade this level would be to wait for price to come up into this level Come back down wait for the reaction the confirmed resistance and then See prices come back up into this level here again, and then you would want to look for Shorting opportunities trading opportunities to the downside So next we have let me just get rid of Some of this stuff here right, so next we have The more zone is touched the weaker it becomes right So With support and resistance the more zone is touched the weaker it becomes There is a tendency for traders to believe that the more a level is touched the stronger it becomes But if you were to think about this logically right if a Level was to become Stronger as it was touched. So let's say for example prices came up prices came down Right. We've got a level resistance if each time a Level is touched it gets stronger and stronger Potentially then we would be in a Ranging market forever the market would pretty much stay between a high and a low and As we know that is not the case, you know markets move in trends. They move sideways and think about really support and resistance as a Pebble being skimmed across a pond So the first touch if you can skim if you don't know what skimming is maybe, you know, Google it But you know, you throw a pebble on You know in a river or a stream or a pond or something like that and what happens is is the pebble Say this is for example, this is the water Right and the first touch is usually the strongest touch The second touch is is going to be a bit less and a bit less and a bit less and then it breaks through The surface of the water. So think about support and resistance In the same way So the more a level is touched is the weaker it becomes that does not mean that this level Will not, you know, we'll definitely break through Right. It you know the market can you know have several touches and bounces, you know five to five six seven Ten touches if it wants to but just as a general rule of thumb What you want to Assume is that the more touches a support or resistance level has Is the weaker it becomes it's not as strong as the previous touches. So let's go back to Go back to the chart, right so Just as a rule of thumb assume that that is the case because we can see for example Right so We can see this level of Support here We have one two and then prices actually Break through now We would look at this zone and we would say okay Well, is this could we have traded it here the first time? So if we trade if we saw this move in real time and we saw prices, you know Come up here come down here. Sorry and then move up, you know and make this bullish move here Could we have traded this the first time round? So then we look to the chart historically and see if prices had been Used as support in the past so we can see prices were supported here We can also see that prices had been support here here and It pretty much, you know broken through but then it would come back and again This would be more of a zone. So If we were looking at that area there Remember prime support and resistance is more of a science and an art so again, it had been used as Support in the past with this area here. So again We can see that prices came into this zone. So We could have actually traded this and been an aggressive trader and Looked to get in on the first touch So we know that this level had been traded in the past as support So once when prices came back down into this we can trade this on the first touch But going back to prices becoming weaker the the more that they touch is That's that's what you pretty much want want to assume So we'll go through some examples So here we go. This was the past previous example So we have you know prices touched here first time second time and the third time Prices reacted. Did we see was this level touched in the past? It's been a level that had been touched in the past No well Slightly and that was back in 2008 it wasn't necessarily a level that had been touched recently in the past so This one you may have wanted to wait for some sort of confirmation Before getting in and as you can see prices did hold the third time of Brown So again, just take it as a rule of thumb you can go back through your charts as well and See how many times on average? You know support and resistance does hold now What we also have with support and resistance is When support becomes resistance and resistance becomes support so when price breaks Right so when price When a support level does not hold or when a resistance level does not hold then the underside of a support level would become resistance and The above side of resistance will become support. So let me just So let me show you what I mean Sorry my brush tool. Here we go so Let's say we have a level of support price has been rejected price has been rejected And then the third touch and then prices go through right so on the second touch we would draw a level of support Once prices break through support Or if they do The underside of what we would call the support level traders now trade this as resistance and this is known as Market structure so the structure of the market Has changed support has now turned to Resistance and it's the same thing with resistance becoming support. So we would have resistance resistance Resistance prices might do something like that We would have a level that traders would trade off of prices break through now traders would trade this level To the upside So when we're talking about and when you hear market structure or the structure of the market, it's that support becomes resistance and resistance Becomes support and again, we're just dealing with probabilities. This is not Exact, you know, you don't think that you know prices now must become You know Resistance once it's broken. It's just there's a likelihood that Once prices break a support level, there's a strong chance or usually a high probability chance that broken support will become resistance and Broken resistance will become support So let's go back to the charts And we can see an example of this on Something we had drawn earlier. So we've got this level of support support and then prices break through What do we see prices come up into this zone here and then we have a rejection Let's see if we can see a few more right so this is this is a nice one, right? So we have prices and this identified level of Previous support now prices come back up into this level and it becomes resistance If we extend the line the zone further We had resistance here And if we extend this To here Prices broke through now resistance becomes support support support Prices broke through resistance we can see that prices broke through again resistance resistance and This is pretty much what happens with the structure of the market. So again, we've got a level here Where we've got a resistance level here, we got Unconfirmed resistance, we don't know what happened to the left So we might want to confirm that level if we were good looking to trade this aggressively So if we were looking to trade aggressively, let's have a quick look to see what had happened in the past And if there was any There was a decent level Well, there was a level it pretty much been 2007 since prices, you know Come back up here, but it was I guess a level That traders had looked to in the past So you would make up your mind to say whether that is a valid level if that was too far in the past But again, we're looking for patterns. So it is a historical level This was what 2014 so pretty much seven years later seven six years later we had the prices come up here and Whether you wanted to trade that Or not, but we're talking about Resistance becoming support and resistance. So we had a level That had been broken through and then we see prices come back and act as a bit of support prices broke through Came back through again broke through and then prices were used as Resistance again at that level prices came back up into this level again. That is a level of resistance prices broke through support support support broke through and we had pretty much Support becoming resistance and resistance becoming support So just to recap Support areas support and resistance areas are zones on a price chart Again, it's I keep repeating this, but it's a science and an art It's very subjective to you, but what's not subjective is You know areas where you have this hard in and hard out movement. So, you know price is being rejected Quite severely and quite sharply. That's not objective. So you're looking for those types of areas to be on alert when you're looking for areas of support and Resistance draw them as zones Look to the past to see if that level had been used Historically as support and resistance. Remember that support becomes resistance and resistance becomes support So if it is an area in the past that has been used as support and resistance You may want to be a bit aggressive in your entry and not necessarily wait for price to be confirmed Once price comes up into a level of support or resistance or potential support or resistance So again, just looking for obvious areas on a price chart. Don't look for You know that every little tiny level Of possible support resistance if it's not clear and you're you know, you're struggling to you know search for a level Then it probably isn't a level of support and resistance. You're not gonna capture every support and resistance level at first This is a skill. You have to kind of get your eye in to You know drawing support and resistance There are gonna be opportunities that you're gonna miss, you know once Prices come up into a level that get rejected. You're gonna think to yourself. Oh, I should have seen that in his hindsight Don't worry. We all go through that The more you draw support and resistance zones on your chart is the better you'll become as You know spotting the best levels of support and resistance. So I hope that helps My name is Leon Roe and if you have any questions, just email me at Support or info at trading 180.com