This is the most important skill in technical trading
Support is a lower level that the price has not broken recently
Resistance is an upper price level that the price has had trouble breaking
Some examples of each and how to use them.
The tops are resistance levels and the bottoms are support levels. Once a level has been established the more important the level becomes.
For example if the price goes down to the support level then moves to the upside then goes back down to the orginal support level and breaks down through. That is significant and at that point you can enter a short trade.
Once the price breaks through the support. That support level becomes resistance.
You can see how the price kept challenging those levels. So you would not want to enter a trade until after the level was broken then you know that your chances of a better trade exist.
Trend Lines
Another type of support levels is trend lines. Draw a trend lines along the bottom or top of a price channel and once the price breaks the line then the trend is broken.
This is an up trend draw your trendline alone the bottom of the price movements. If the price drops and bounces off of the trend line you know that the trend is still in effect. the price drops and continues down you know that the trend is not in effect and that would be a good place to put in a short trade.
It is also useful to use support and resistance levels to set up your stop losses, watch this video. To learn how to properly setup stop losses.
