A very powerful regularity within the movement of the market are Support and Resistance Levels. Once you are aware of these you can’t help but notice the market reacting to them all of the time.

Prices will rise and find resistance at a previous price level and reverse; or prices will fall and find support at previous price levels and reverse. Sometimes these price resistance and support levels will hit within the cent! Taking a look at this phenomenon over a larger timeframe, you will notice that it holds no only for weeks or days at a time - the crazy thing is that more often than not these same price levels will be revisited over significant time frames such as after 7 years!

Below, there are two horizontal lines displayed. The chart is a daily bar chart that spans over 1 year. Look closely how many times it touches or comes very close to both these lines. Initially the price vibrated between these two price lines finding resistance at the top line and support on the lower line, before breaking down and out of the consolidation.

The interesting point is that after falling out of this price channel the market came back up finding resistance 3 times on the lower line before breaking up into it again, with short term support on the line before a significant rally up and out the top resistance line. As the market continues over time it again finds both support and resistance at these levels. Understanding that these support and resistance levels exist and will most likely be repeated in the future can assist a trader to be cautious to a market reversal situation; combining this knowladge with bar chart or candlestick reversal patterns can yield very high-probability events.

Diagonal Resistance

Support and Resistance don't just happen horizontally. Up Trends and Down Trends are simply the market rising and falling on a psychological floor or ceiling – diagonal resistance. In the image below, on the left you can see an up trending market that naturally rises and falls finding support on a seemingly invisible floor.  The market then changes direction and starts its decent, which again rises and falls in a rhythm that finds uncannily resistance at an invisible ceiling. The more times a market finds support or resistance at these ‘invisible lines’, the higher the probability of continuing in the direction it is trending.

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