Do you know what supports and resistances are? Discover the secret to winning in trading!

Trading is an exciting activity, but also very demanding. It requires knowledge, discipline, strategy and, above all, a good reading of the market. How do you know when to buy or sell an asset? How to anticipate price movements? How to take advantage of the opportunities that arise every day?

The answer lies in supports and resistances, two key concepts that every trader must know and master. These levels are what make the difference between success and failure in trading, and those that will allow you to maximize your profits and minimize your losses.

But what exactly are supports and resistances? How are they identified and used? What types are there and how to operate with them? In this article we explain everything to you, with practical examples and reliable sources. Keep reading and discover the secret to winning in trading!

What are supports and resistances

Supports and resistances are simple concepts, but very powerful. These are price levels at which the market stops and changes direction, due to the balance or imbalance between supply and demand.

• A support is a price level below the current one, where demand exceeds supply, and the price stops falling and rises again. It can be interpreted as a “floor” that supports the price.

• A resistance is a price level above the current one, where supply exceeds demand, and the price stops rising and falls again. It can be interpreted as a “ceiling” that limits the price.

Supports and resistances form because market participants have memory, and they tend to buy or sell at the same points as in the past. These levels also have a psychological component, since they generate expectations and emotions in traders.
Supports and resistances are useful for:

• Identify the market trend, whether bullish, bearish or sideways.
• Detect possible trend changes, through the breakout or rebound of levels.
• Set entry and exit points, as well as stop loss and take profit levels.
• How to identify supports and resistances
• To identify support and resistance, the first thing to do is observe the price chart of the asset you want to analyze, whether it is a stock, a currency, an index, a cryptocurrency or any other.

Supports and resistances can be drawn manually by drawing horizontal lines connecting price lows and highs, respectively. The more times the price has touched a level, the stronger and more relevant it will be.

You can also use automatic tools, such as technical indicators, which calculate support and resistance levels based on mathematical formulas. Some of the most popular are moving averages, pivot points, Bollinger bands or Fibonacci retracements.

In any case, it is important to keep in mind that supports and resistances are not exact lines, but rather zones or ranges in which the price can oscillate. Therefore, it is recommended to use a margin of error when trading with them, and not wait for the price to touch them to the millimeter.

Types of supports and resistances

Supports and resistances can be classified into different types, depending on their origin, duration or behavior. Some of the most common are:

• Static supports and resistances: these are those that remain constant over time, and are formed from historical price levels, such as absolute maximums and minimums, or round or psychological numbers.
• Dynamic supports and resistances: these are those that vary over time, and are formed from technical indicators that adapt to the price, such as moving averages, Bollinger bands or trend channels.
• Major supports and resistances: these are those that have greater importance and duration, and are formed in broad time frames, such as daily, weekly or monthly.
• Minor supports and resistances: these are those that are of lesser importance and duration, and are formed in reduced time frames, such as the hourly, 15-minute or 5-minute frames.
• Broken supports and resistances: these are those that stop functioning as such, and become the opposite, that is, a broken support becomes a resistance, and a broken resistance becomes a support. This is due to the change of roles between supply and demand.

How to draw supports and resistances on the chart

Drawing supports and resistances on the chart is a skill that comes with practice and analysis. There is no fixed rule or magic formula to do it, but it depends on the interpretation and criteria of each trader. However, there are some tips that can help you do it better and easier.

1. Use a candlestick chart as it gives you more information about the price than a line or bar chart.
2. Choose a time frame appropriate to your trading style and time horizon. If you trade short-term, use minute or hour time frames. If you trade long term, use time frames of days or weeks.
3. Look for price levels where the price has bounced or rejected several times, both in the past and present. The newer the level, the more relevant it is.
4. Draw a horizontal line connecting those points, trying to cover as many touches as possible. Don't worry if the line is not perfect, the important thing is that it is approximate and respects the logic of the market.
5. If you want to draw dynamic supports and resistances, use tools such as trend lines, channels, moving averages or indicators. These tools allow you to draw sloping lines that follow the direction of the price and are updated with each new candle.
6. Don't draw too many support and resistance levels as it can clutter the chart and make you confused. Try to select only the most important and clearest levels, and eliminate those that are no longer valid or relevant.
7. Periodically review your support and resistance levels, and adjust them if necessary. The market is dynamic and support and resistance levels can change over time. Keep your chart up to date and clean.

Supports and resistances are the secrets of trading that no one tells you, but that you already know. Now you just have to put them into practice and see how your results improve. Remember that trading is an art and a science, and that it requires study, practice and discipline.