Mapping Support and Resistance in Trading Objective

Key Concepts

1. Importance of Support and Resistance

• Support: A price level where a downtrend can be expected to pause due to a concentration of demand.

• Resistance: A price level where an uptrend can be expected to pause due to a concentration of selling interest.

• Proper identification of these levels is crucial as incorrect markings can lead to losses.

2. Confluence

• Always look for additional confirmation before acting on support and resistance levels. This could include:

  • Fibonacci retracement levels

  • Volume analysis

  • Moving averages

3. Multiple Touches

• Higher-term timeframes with multiple touches at a support or resistance level signify a stronger level.

• Analyze historical data to identify these levels on monthly, weekly, and daily charts.

Step-by-Step Process to Map Support and Resistance

Step 1: Start with Higher Timeframes

• Monthly Chart: Identify the major support and resistance levels. These are significant and represent larger price movements.

• Weekly Chart: Zoom in to refine levels identified in the monthly chart.

• Daily Chart: Narrow down your analysis to daily price actions.

• 4-Hour Chart: For day traders, a four-hour analysis gives insight into shorter-term movements.

Step 2: Use a Color-Coding System

• Differentiate levels using color:

  • Monthly Levels: Purple (strongest)

  • Weekly Levels: Yellow

  • Daily Levels: Blue

  • 4-Hour Levels: Orange

Step 3: Verify Levels with Multiple Touches

• Look for areas on the chart where prices have bounced or reversed multiple times.

• More touches generally indicate stronger support or resistance.

Step 4: Assess Confluence

• Confirm your levels with additional analysis, such as:

  • Volume Nodes: Areas where trading volume is low may indicate important levels.

  • Moving Averages: If a moving average intersects with a support/resistance level, it increases significance.

Step 5: Practicing on Charts

• Pick a cryptocurrency or stock and apply the mapping process:

  • Identify levels on monthly, weekly, and daily timeframes.

  • Mark them using your color-coding system.

  • Analyze how prices reacted to these levels historically.

Conclusion and Practice

Support and resistance mapping is a fundamental skill for traders. It forms the basis for many trading strategies.

Exercise

1. Choose a stock or cryptocurrency.

2. Map the support and resistance levels as outlined in this lesson.

3. Observe how these levels perform in real-time trading.

By mastering support and resistance, you build a strong foundation for more advanced trading techniques.