Support and resistance: drawing them so they mean something

Support and resistance is the first concept taught and the most frequently misused. The problem is not
the concept but the drawing: most beginners draw too many lines and have no criterion for removing any.

1. What they actually are

Not magic lines. They are price areas where a lot of orders were previously executed —
where buyers or sellers acted decisively in the past and may act again.

For that reason, think of them as zones rather than lines. Price rarely reacts at one
exact level.

2. Three kinds worth drawing

• Swing highs and lows — clear turning points on the chart. The most basic kind and the
  most reliable.
• Extended sideways areas — where price consolidated over many candles. The more time
  spent consolidating, the more the zone means.
• Round psychological levels — 1.1000 on
  EUR/USD, 150.00 on
  USD/JPY, 3,000 on gold. A great many
  pending orders collect there.

3. Three criteria for strength

• How many times it has been tested — a zone that has turned price back three times is
  more notable than one that has appeared once.
• How strong the reaction was — price leaving the zone with a long candle means far more
  than drifting away slowly.
• Timeframe — a zone formed on H4 or D1 matters more than one on M15.

4. The role-reversal principle

When a resistance zone is decisively broken it usually becomes support, and vice versa. The reason is
simple: the people who sold there are now in a loss and want out at breakeven when price returns.

It is one of the more reliable patterns and it produces plenty of entries with a good
risk-reward ratio.

5. The mistake: drawing too many

A chart with fifteen horizontal lines always has one near price — which means you can always find a
reason to enter, and that is precisely the problem.

A practical rule: three or four zones at most per timeframe. If a zone is not obvious
enough to point to within three seconds, delete it.

6. A five-minute drawing routine

1. Open D1. Mark the two or three clearest turning zones of the last six months.
2. Switch to H4. Add at most two zones near current price.
3. Return to your trading timeframe. Draw nothing more — use only the zones you
   have.
4. Wait for price to approach one of them, and only then look for an entry signal.

This routine forces you to wait rather than hunt for a reason — the biggest difference between selective
trading and overtrading.

This article is for information only and is not investment advice. Conditions and fee levels are published by the brokers and can change at any time — check with the broker you actually use. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.