One of the first skills you have to learn as a price action trader is how to draw support and resistance lines (or levels as they’re sometimes called). Drawing correct support and resistance lines is no easy task for a beginner trader. Many fail to learn the skill correctly, and out of frustration scour the internet in search of an indicator which will draw the lines for them automatically. Unfortunately, there is no support and resistance indicator out there which will draw the correct lines on the chart, which means the only hope these traders have of being able to use support and resistance lines in their trading is if they learn how to draw the lines themselves.
If you’re one of the frustrated traders who can’t seem to ever draw the right support and resistance lines on your charts, read on. Because in today’s article I’m going to give you a step by step guide on how to easily identify and draw support and resistance lines in the market. By the end of this article I can guarantee you’ll be able to draw support and resistance lines like a pro, and will be able to start using them in your trading.
I just want to make it clear that the support and resistance lines I’ll be showing you how to draw in this article are not the same as the lines you can receive weekly by signing up to my support and resistance levels service. The levels in the service are based off additional variables which are not accounted for when drawing the lines I’ll be showing you today, which is why they are found at different prices to one another.
How To Identify Support And Resistance Lines
To start, I need to show you how to identify support and resistance lines on your charts, because it’s one thing being able to draw the right lines, but another thing entirely finding out where these lines are located in the first place. Determining where support and resistance lines are located is quite a simple process, although it’s one which can be difficult if you have no knowledge of how support and resistance lines work.
For those of you who don’t know, support and resistance lines are points where the market has a high probability of reversing. The reason they have a high chance of causing the market to reverse, is because the lines themselves are calculated from the points where the market has reversed in the past. The idea is if the market has reversed multiple times from roughly the same point in the past, then it has a good chance of doing the same in the future. (You’ll see why later on)
This means all we need to do to identify where support and resistance lines are located in the market, is look for the points where multiple reversals originated from similar prices to one another.
You can see that each of the reversals above originated from prices which are quite close to one another. This tells us that a support line must be found somewhere close to where these reversals started, because in order for a support line to actually exist in the market, multiple reversals must have originated from similar prices to one another.
Again, each one of the reversals you see here started from similar prices to one another, which means there’s a resistance line around here which we can locate and draw on our charts.
Now that I’ve show you a couple of examples of how to identify support and resistance lines, what I want to do next is run you through the process you have to go through to determine where each type of line is found. Because although you find support and resistance lines in the same way, whether or not a line is a support line or resistance line depends solely on where the reversals have formed in relation to the current market price.