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Determining Support and Resistance Levels On The Charts

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Ettore Trucco
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32 views1 page

Determining Support and Resistance Levels On The Charts

Uploaded by

Ettore Trucco
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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28/05/24, 23:02 Determining Support and Resistance Levels on the Charts

Determining Support and Resistance Levels on the


Charts
By Jim Wyckoff

In this educational feature, I'm going to tackle an issue about which several of my readers have inquired:
How to determine support and resistance areas on the charts.

My favorite method (and I believe this the most accurate method) of determining support and resistance
levels is to look at a bar chart and its past price history and then see at what price levels the highs, lows and
closes seem to be touching the most. This method of determining support and resistance levels works on any
bar chart timeframe--hourly, daily, weekly or monthly. Many times a bunch of highs or lows will be
concentrated in a small price area, but not at one specific price. If that's the case, I will determine that area to
be a support or resistance "zone." The one thing I will point out with determining support and resistance
zones is that you don't want your zone to be so wide that it's virtually useless from a trading standpoint.

Major price tops and bottoms in markets are also major resistance and support levels. Unfilled price gaps on
charts also qualify as very good support and resistance levels. Trendline support and resistance is also very
useful to the trader. Projecting these trendlines to determine future support and resistance areas is extremely
effective.

It's important to note that when a key support level or zone is penetrated on the downside, that level or zone
will likely become key resistance. Likewise, a key resistance level or zone that is penetrated on the upside
will then likely become a key support level or zone.

Another way to discover support or resistance areas is by looking at "retracements" of a significant price
move--price moves that are counter to an existing price trend. These moves are also called "corrections." For
example, let's say a market is in a solid uptrend. That uptrend began at the 100 price level and prices rallied
to 200. But then prices backed off to 150, only to then turn around and continue to rally higher. This would
be considered a 50% retracement of the move from 100 to 200. The 150 level proved to be solid support. In
other words, the 50% retracement level proved to be a solid support level because prices dropped by 50% and
then moved back higher. The same holds true for downtrends and "corrections" to the upside.

There are a few retracement percentages that work well at determining support and resistance levels. They
are as follows: 33%, 50% and 67%. There are also two other numbers called Fibonacci numbers. (Fibonacci
was a mathematician.) Those numbers are 38% and 62%. So, these five numbers are the best at determining
retracement support and resistance levels. Most of the better trading software packages have these five
percentages calculated in a tool, so that all you have to do, for example, is click your mouse at the beginning
of the price trend and then at a high, and the percentage retracements are laid out right on a price chart.

Still another way that support and resistance levels can be identified is through geometric angles from a
certain key price point. W.D. Gann, a legendary stock and commodity trader who died in 1955, is the most
noted proponent of this method. He also used the same five numbers to calculate his angles. Again, the better
trading software will provide "Gann fans" to plot the angles on the charts.

Finally, support and resistance levels for markets can be determined by "psychological" price levels. These
are usually round numbers that are very significant in a market. For example, in crude oil, a psychological
price level would be $20 per barrel, or $25, or $30. In soybeans, a price of $5.00 or $6.00 or $4.00 would be
a psychological level. In cotton, 50 cents would qualify. Silver would be $5.00.

There are other methods traders use to determine support and resistance levels, but those mentioned above
are the most popular.

https://www.angelfire.com/ia2/jimwyckoff/support.html 1/1

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