Support and Resistance: A Practical Guide
Support and resistance levels are the most basic technical concept in trading. They are also the most useful. Every other indicator builds on them.
What they are
Support is a price level where buying pressure overcomes selling pressure. Price hits it and bounces. Resistance is where selling overcomes buying. Price hits it and reverses.
These levels form at previous swing highs and lows, round numbers, moving averages, and volume profile high volume nodes. The more times a level has been tested and held, the stronger it is.
Drawing them correctly
Start on the daily chart. Weekly for the bigger picture. Mark the obvious swing highs and lows. If you have to squint to see it, it is not a level worth marking.
Horizontal levels matter more than diagonal ones. A clean horizontal line at a previous high or low is your best level. Trendlines add context but give more false signals.
Only mark levels that price has touched at least twice. A single touch is not support or resistance. It is just a price.
Trading from levels
Do not enter at the level. Wait for price to reach it AND show a reaction. A pin bar, an engulfing candle, or a volume spike at the level confirms that someone else sees it too.
Buy at support with a stop below it. Short at resistance with a stop above it. If the level breaks, you are out. No exceptions.
Levels flip. Old resistance becomes new support once broken. Old support becomes new resistance. This is the most reliable pattern in technical analysis.
Nordic stocks and S/R
Nordic large caps respect support and resistance more reliably than US names. Lower algorithmic participation means fewer fakeouts. Levels on OMXS30 and OMXC25 names hold cleaner than on NASDAQ stocks.
The 50 day moving average acts as support in uptrends on Swedish industrials. The round number levels on Novo Nordisk (500, 600, 700 DKK) act as psychological barriers. Mark them all.
Common mistakes
Marking too many levels. Five clean levels on a chart is better than twenty squiggly lines. If your chart looks like a spider web, delete everything and start over.
Treating levels as exact prices. They are zones. Give yourself half a percent of room on either side. A level at 100 means the zone is 99.50 to 100.50.
Ignoring the timeframe. A level on the 5 minute chart is noise on the daily. Match your levels to your holding period. Daily chart levels for swing trades. Weekly for position trades.
The checklist
- Find the obvious swing highs and lows on the daily chart
- Mark levels with at least two touches
- Wait for price to reach the level and show a reaction
- Enter with a stop beyond the level
- Respect the flip when a level breaks