The Psychological Importance of Support and Resistance Levels

Support and resistance levels can be thought of as the "battle lines" where the bears and the bulls face off...

There can be no doubt that this can seem like a simple concept but support and resistance levels can come in many different guises and, as you dig deeper, you realise that these crucial areas are more difficult to master than they first appear.

Here Is A YouTube Video Which Gives You 3 AMAZING Tips On How To Identify And Draw These Deceptively Simple Levels...

3 Amazing Tips To Identify And Correctly Draw Support And Resistance Levels

However, there is no denying that they represent levels were traders of all shapes and sizes in the market are aware of and so to ignore them or to negate their importance will be the downfall of many a trader.

So, resistance occurs where a downtrend pauses - due to buying activity coming into the market - the signature bounce can be seen;

Resistance, on the other hand, acts like a ceiling where an uptrend pauses - again a bounce is visible;

These levels should actually be thought of more as areas because the market will not always fall or rise to exactly the same level. Therefore, traders can miss out on potentially profitable trading opportunities if they think of these levels as purely lines.

Another important feature of these areas/zones is that even if the first time they were created was far back in the markets past they can still apply - especially if they are a major support or resistance level.

Now, this is important - support and resistance levels should not be thought of as being individual. They should be thought of as being interchangeable. This is due to the fact that support becoming resistance, and visa versa, is a regular occurrence in the markets. 

If a market has tested a particular level - no matter whether that was with support or resistance or both - 3 times or more (this is my own strategy, but opinions certainly vary) then it becomes a major support level.

Now, these major support levels are the areas that you should be searching for on your charts as they represent the most likely points that a change in the market direction will take place and, thus, often present excellent trading opportunities. 

Hence, the importance of the psychology behind support and resistance levels...

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