Why Traders Need to Understand Support and Resistance: Trading Entry Points You Might Miss

Many people think that trading requires complex systems and numerous indicators, but in reality, understanding support and resistance alone is enough to create effective strategies. Whether you trade stocks, crypto, or other assets.

The Difference Between Support and Resistance: The Language of Price Everyone Speaks

In trading, you will encounter two forces at work:

Support (Support) is the price level that acts as a wall when moving downward. When the price drops to this level, buying pressure returns and halts the free fall. Think of it as a zone where traders loudly say, “The price won’t go down further from here.”

Resistance (Resistance) is the opposite: a price level where the price tries to break through but stops. When the price reaches this level, selling pressure surges in and halts further upward movement.

What’s hard for beginners to understand is: when resistance breaks, it becomes new support immediately. Similarly, when support is broken, it turns into new resistance.

Economics vs. Psychology: Why Support and Resistance Are Real

###Supply and Demand Balance Price moves because of two forces: people wanting to buy and people wanting to sell. When selling pressure exceeds (Excess Supply), the price falls. But when it reaches a level where some see it as cheap, buying pressure returns. This is the origin of support.

Conversely, when demand exceeds (Excess Demand), the price rises. But when it reaches a level where investors believe it’s too expensive, they start selling. That’s resistance.

###Market Psychology Besides numbers, people’s psychology plays a role. There are 3 groups in the market:

First group - Buyers who have already bought and are waiting for the price to go up. They won’t allow the price to fall further.

Second group - Sellers who have already shorted (Short) and are waiting for the price to drop. They will sell more when the price is high.

Third group - Idle traders waiting for a good entry point.

These three groups create repetitive trading behaviors at the same points, forming clear support and resistance levels.

5 Ways to Find Support and Resistance: Tools Traders Actually Use

1. Trendlines (Trendline): The Foundation for Everyone

If the price is in an uptrend, draw a line through the rising lows (Higher Lows). That’s support. The line through rising highs (Higher Highs) is resistance.

For a downtrend, draw a line through decreasing highs (Lower Highs) as resistance, and through decreasing lows (Lower Lows) as support.

2. Round Numbers (Round Numbers): The Power of the Mind

Prices ending in 0 have psychological power, like $100. When the price approaches these levels, people feel something has changed—even if it’s just $1000 a round number$1 . This is because round numbers seem like new “entry points” in the mind.

3. Moving Averages (Moving Average): The Market’s Average Cost

The 50-day moving average shows where traders’ average cost is. The price often revisits this line, such as in an uptrend where it touches the moving average and bounces back (used as support).

4. Fibonacci Retracement (Fibonacci Retracement): Nature’s Answer

When the price swings significantly, like from a low $10 to a high$50 and then starts falling back, it often stops at Fibonacci levels: 23.6%, 38.2%, 61.8%. A reversal at 38.2% (from $50 $34.88) is often seen as a good support level by traders.

5. Price Gaps (Window Gap): Zones Without Trading

When the price jumps over a zone without trading, it becomes a strong support/resistance because no one has a position there. The price may later fill this gap.

3 Strategies Traders Use with Support and Resistance

Strategy 1: Range Trading (Range Trading)

When there’s no clear trend but the price oscillates between support and resistance, buy at support and sell at resistance. Simple but effective—just beware of trend breakouts.

Strategy 2: Reversal Trading (Price Reversal)

In an uptrend, when the price hits resistance, prepare to sell as it may turn down. In a downtrend, when it hits support, prepare to buy as it may bounce back.

Strategy 3: Breakout Trading (Breakout Trading)

When the price clearly breaks resistance with high volume, it’s a buy signal. When it breaks support with high volume, it’s a sell signal.

But beware: the danger of this approach is a “False Breakout,” where the price breaks out briefly and then reverses.

3 Common Mistakes New Traders Make

1. Going Against the Trend Out of Kindness

If the trend is up, don’t short at resistance, as it’s risky. In an uptrend, prices keep making new highs. The old saying “Trend is your friend” remains true.

2. Relying on Old Support and Resistance

The longer support and resistance levels have been in place, the more likely they are to change. Traders should avoid over-trading and neglect risk management.

3. Ignoring Volume

False breakouts often have low volume. Only trade breakouts with significant volume.

Summary

Support and resistance are not just science—they involve economic logic and psychology. The more you practice, the clearer they become. Study real charts, draw lines, identify points, and you’ll find it’s not as hard as it seems.