Exploring Charting Techniques
Demystifying Support & Resistance, Part 4 by Sylvain Vervoort
The term support & resistance comes up often when discussing price charts. But when is a support level really a support, and when is a resistance level really a resistance? In this article, I will look at the static and dynamic price support & resistance levels.
PRICE SUPPORT & RESISTANCE
Bullish trends take place because of the failure of resistance levels. But at the same time, most bullish trends end at a resistance level. In a bear trend, most support levels fail, but more often than not, bear trends end at a support level.
When do you know a bullish trend has begun? Generally speaking, there are four steps in a bullish reversal. The first is that price has to reach a bearish downtrend support, retracement, or price target. Next, there is an upward breakout of a downward channel or a flat trading range. The third step is the formation of a higher bottom. The last step is the occurrence of a higher high. The order of these steps may differ.
These four steps are depicted in the chart of the 30-minute emini futures in Figure 1. At point 1 price finds static support at the level of the previous lows. At point 2 it breaks above the trading range and out of the downward channel. At point 3 there is a higher low, and at 4 the last high is broken.