Support and Resistance

Steve Sollheiser
www.UniversalTradingProfits.com

In this chapter I will teach you the basics of charting the very foundation we will
build on in the next chapters.
You will learn:

What is Support and Resistance

How to draw Support and Resistance levels correctly

How to draw trendlines

What are Breakouts and Pullbacks

How To Time Entries

Support and Resistance

These ideas are at the very core of Chartism and Technical Analysis, and almost all
Chart Patterns involves them in some way. We will now define Support and
Resistance and describe the ways they may appear in the markets.
Support and Resistance are psychological levels which price has difficulties to
break. Many reversals of trend will occur on these levels.
When a certain level is difficult for price to cross upwards it is called Resistance.
When a certain level is difficult for price to cross downwards it is called
Support.
The harder for price to cross a certain level, the stronger it is and the profitability
of our trades will increase. Try to trade on levels that price stopped on at least
twice.
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The most basic form of Support and Resistance is horizontal. Examples:

Fig. 1: Price bounces off horizontal Resistance level at 1.5800

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Fig. 2: Price bounces off horizontal Resistance level at 1.5845

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Fig. 3: Strong horizontal Support level at 1.5450

Fig. 4: Horizontal Support level at 1.5730

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Strong horizontal levels are round levels - 1.1300, 148.0, 130, etc. These levels are
usually prone to high activity from buyers and sellers, and therefore usually cause
reversals in price.
An interesting phenomenon can occur when price breaks a psychological level:
Support level can transform into Resistance, and vice versa. This knowledge gives
you the power to predict price reversals. Example:

Fig. 5: Resistance level turned into Support after breakout

Another visual representation of Support and Resistance is dynamic the

Trendline. This is a sloped line which is difficult for price to penetrate. There are
support trendlines and resistance trendlines - depending on their position in
relation to price.
Examples for trend lines:

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Fig. 6: Dynamic Resistance trendline in EUR\USD. It is a Resistance level because it is the upper
bound of price

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Fig. 7: Dynamic Support trendline in EUR\USD. It is a Support level because it is the lower
bound of price

Fig. 8: Dynamic Support at EUR\USD

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Fig. 9: Dynamic Resistance Line

All the chart patterns we will cover in this book consist of trendlines and
psychological levels. Study these examples well and test your knowledge by
identifying trendlines in your trading platform.

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