• Over time a stock may find that it is unable to penetrate a particular price level.
• If this price level occurs at the top end of a stock’s trading range it is known as resistance. If it occurs at the bottom end of a stock’s trading range it is known as support.
• If we are able to identify these support and resistance levels we can use them to our advantage
• These levels of S&R can take as little as 3 days , or as long as several years to form. The longer the period over which they form the stronger that level will be.
• The most common form of S&R occurs at horizontal price levels, however it can also form along a trend line or at a moving average.

Horizontal Support and Resistance

1. Generally we want to see a stock test and fail to penetrate a price level at least 3 times before we would consider it a true support or resistance level.

2.Only once a valid support or resistance is established can we draw a line on our chart.

3. Often horizontal S&R will occur at round number price levels i.e. £4.00 or £4.50.

Trendline Support and Resistance

1. As the MA’s are already calculated and drawn onto the charts we always presume they will act as valid support or resistance levels.

2. Therefore there is no requirement for at least 3 tests of the MA’s before we would consider them true support or resistance levels.

Breaks of Support and Resistance

• If a resistance level is broken and a stock moves to higher prices, the penetrated resistance level should now provide a level of support if tested.
• Conversely if a support level is broken, and the stock moves to lower prices the penetrated support level should now provide a level of resistance if tested.

Chart Patterns

• Price action often forms on the charts in particular patterns and formations which we know consistently provide high probability trading opportunities
• But have you really ever assessed what it is about chart patterns that makes them work
• Essentially chart patterns form when support and resistance levels align themselves in a particular manner which then create these patterns.
• A trading opportunity does not present itself until one of these support or resistance levels is broken. So essentially we are simply trading breaks of support or resistance.