How To Identify Strong Support & Resistance

How To Find Strong Support & Resistance

Intro: 0:00
What Is Support And Resistance: 0:24
Static Resistance: 0:57
Dynamic Resistance: 5:35

If you've been watching me, you're well aware that I am a technical trader. I use charts and indicators to make my trading decisions.

In the world of technical traders, some of the first things you learn are support and resistance. These are levels in the markets where the price tends to gravitate towards. A lot of this is simply due to human psychology....we like nice round numbers.

But as I'll discuss during today's session, there are a LOT of opinions on the best method for plotting these levels on the chart, and how to find support and resistance in stocks, and show you the best way to plot support and resistance.

For the most part, there are two types of analysis (or some combination of the two) that traders perform before entering a position:

Fundamental Analysis: This is primarily looking at the financials of a company and making trades or investments based on this information.
Technical Analysis: In this type of analysis you don't pay any mind to the financials and focus only on the charts.

So what exactly are support and resistance? And why should I care about support and resistance levels in my trading? Support and resistance are levels that prices have a problem moving through, with support typically below prices acting like a "floor," and resistance typically above prices acting as a "celling." There are two types of support and resistance: Static, and dynamic.

Static can be a line or can be at an angle. Now with a support line, sometimes called a trend line, is a line where a price bounces off and comes back down to the support line. With a resistance line, this is the line where the price bounces of as it's rising, back down.

There are 3 ways to find strong support and resistance:
1) Zoom out.
2) Focus on the "big support and resistance" lines.
3) The more "touches" the stronger the support/resistance.

Now let's talk about "Dynamic" support & resistance lines. This is where we are looking at moving averages: 50, 100, & 200-day moving averages. There are some downfalls to using these moving averages, & some traders like to use "Fibonacci numbers:" 5, 8,13,21, ... The Static support/resistance lines are usually stronger than the dynamic support/resistance lines.

To wrap it up, finding strong support/resistance lines is both an art, AND a science.

The Wheel Strategy Playlist:
   • The Options Wheel Strategy  

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