How to Find the Right Support and Resistance

Dec 07, 2022

Ask a group traders to draw key Support & Resistance on EURUSD H1 chart. I guarantee you that you'll get very different lines drawn on the chart.

Next thing you know, they are arguing over who's right and wrong.
Just make sure not to ask this at a bar. It's not going to be pretty LOL!

Finding the right Support & Resistance is very important for your trading. Even if you are not trading based on Support & Resistance, just knowing the right levels to trade at could be extremely beneficial for your existing strategy.

In this blog, we'll be diving into:

1. Why is Support & Resistance Important
2. Finding the best Support & Resistance
3. Loading up and Support & Resistance

1. Why is Support & Resistance Important

The age old question, why? Why is it so important to understand Support & Resistance.

The way we see it, a strong Support & Resistance is where bigger players will be interested in loading up their position. Key word here being 'Strong Support & Resistance'. And if you happen to open a position in the same area as where the bigger players are loading up, your trade might be able to travel much further and faster.

Let's look at a very simple strategy. Say we execute our trade when there is a divergence in the market. And I'm going to show you two almost identical divergence setups.

Trade 1:

Trade 2:

Notice how Trade 2's move away from the area is much bigger and powerful?

Let's just zoom out a bit on this trade:

Look at how it's right on a key Resistance Level!

Think of it this way, would you want to buy at an area where people like Bill Gates, Jeff Bezos are looking to buy, or a random area where Tom, Dick & Harry is looking to buy?

2. Finding the best Support & Resistance

Drawing Support & Resistance is not that difficult. What's difficult about it is drawing the best one.

Let's do a quick exercise, below is a blank chart. Where do you think the best Support & Resistance here is 🤔:

This is actually a trick question. Because the best way to find out which Support & Resistance to trust, is to check if it's VISIBLE one timeframe higher.

Here, this Support & Resistance that you probably have guessed earlier:

It is also visible on the higher timeframe:

"Bigger" money resides on the higher timeframe levels. And if you are able to identify where the bigger level is, that's likely where bigger moves will happen.

So understand this. Looking for strong Support & Resistance is not just about connecting two points on one single timeframe, it's more of looking if the level is also visible on the higher timeframe, where more money/liquidity is going to pour in at.

3. Loading up and Support & Resistance

Now since we are speaking about bigger players, let's look at how reliable these Support & Resistance are based on whether or not the bigger players are actually in.

Just identifying strong Support & Resistance is half the battle. The other half is identifying if there are orders filling up at the levels.

In order for the market to make a big move, a lot of orders need to be filled. And for orders to get filled, market needs to slow down at these Support & Resistance.

Here's an example of how market is slowing down at the Support & Resistance, filling all the orders:

Here's an example where not all orders are necessarily filled:

Notice how this is just a 'touch and go' situation? A lot of bigger players aren't filled.

Guess what happens if they are not filled? Price wouldn't go far:

And if you find yourself in this situation. just know that exit sooner than later would be your best bet.

Putting things Together:

If anything, you want to take away this two things:

1. Look for Support & Resistance that's visible on the higher timeframe
2. Make sure that there is proper load up at the Support & Resistance

Just understanding these 2 points will dramatically increase your winning probability.

Over the years, we have written multiple blogs surrounding Support & Resistance. If you like this, you can have a read at the others here:

True Power of Support & Resistance
Key to Successful Support & Resistance Trading

Conclusion

You now should know exactly which area of Support & Resistance you are supposed to be trading at on your charts. Hopefully now, it's not a guessing game anymore.

Remember, connecting two dots in the market, is something a 4-year old can do. It's more than just that! You now have the knowledge. Go out there and make the best out of it!

With Pip Love,
Lucas at Urban Forex