04e Support and Resistance V1 Workbook

YTC - Introduction to Trading -
Technical Analysis
Module 4: Chart Analysis

Part E: Support & Resistance
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© Copyright 2013. Lance Beggs. All Rights Reserved.

Disclaimer
• Before commencing this course, please familiarize

yourself with the full disclaimer at the following
webpage:
http://www.yourtradingcoach.com/Disclaimer.html
• If you are unsure about the contents of the

disclaimer, please contact me via
support@YourTradingCoach.com
Disclaimer
• The information available on our website and any of our
products is GENERAL COMMENT ONLY, for the purposes of
information and education.
• We don't know you so any information we provide does not

take into account your individual circumstances, and
SHOULD NOT BE CONSIDERED ADVICE.
• Before investing or trading on the basis of our material, we

encourage you to first SEEK PROFESSIONAL ADVICE with
regard to whether or not it is appropriate to your own
particular financial circumstances, needs and objectives.

Support
Price
movement
Support
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Support
• Support – An area below price which has the potential to halt and
possibly reverse any bearish price movement down into that area.
Support
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Resistance
Resistance Level
Price
movement
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Resistance
• Resistance – An area above price which has the potential to halt and
possibly reverse any bullish price movement up into that area.
Resistance
Level
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Change of Polarity
• Resistance becomes Support
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Change of Polarity
Resistance Breakout
Support
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Change of Polarity
• Support becomes Resistance
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Change of Polarity
Breakout
Resistance
Support
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Identifying S/R & Marking Up Charts
• The process used to identify S/R levels

• How many swing highs or lows are required to define a level?
• Is S/R an exact price level? How close is acceptable?
• What timeframe should we use?
• What can we do when there are too many levels?
• When should we remove the levels?
• Variations of the above
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Identifying Support
• Look below current price
to identify:
– Approximately equal
swing lows that have not
yet been broken.
swing highs that have
been broken only once
(ie. Change of polarity)
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Identifying Resistance
• Look above current
price to identify:
swing highs that have
not yet been broken.
swing lows that have
been broken only once
(ie. Change of polarity)
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(Q) How many swing highs or

lows are required to confirm a
valid support or resistance
level?
(A) 2 swing highs or lows
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(Q) Is S/R an exact price level? How close is acceptable?
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(Q) What timeframe should we use?

(A) Trading Timeframe… or Higher Timeframe!
Common advice is to vary timeframes

by a factor of approximately five.
Trading Timeframe Higher Timeframe
Daily Weekly
4 Hour Daily
1 Hour 4 Hour or Daily
5 Min 30 Min
etc
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(Q) What if there are too many levels?

(A) Select just the most obvious levels.
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Q. When should we remove levels?

(A) Levels are removed once price has broken them twice with
no reaction.
After a second break
through the level, with
no reaction, the level is
removed from my chart.
No reaction (1) No reaction (2)
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• Timeframe
• trading timeframe or
• higher timeframe
• Number of swing highs/lows

• If using the higher timeframe, many traders are comfortable
with one swing high/low at significant turning points.
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Strength/Weakness of S/R
• Factors Contributing to Strength/Weakness
– Time
• The longer a price level has
remained relevant as S/R, the
more significant it becomes, and
the stronger it is considered.
... Is not considered as significant nor

This level on a four hour chart, as strong as these weekly chart levels
tested over a one week period, tested several times over the last two
and valid for just under three years.
weeks total…
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– Number of touches
• The more times price touches a level and bounces off it, the greater
the strength of that S/R level.
… is not considered as
relevant or strong as this
This level with only three level that had a total of
touches… seven touches over recent
days. (NB. Four more are to
the left of this chart.)
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– Recency
• A recently formed level is considered more relevant, and stronger, than a
similar level formed a longer time ago.
This level formed only a fortnight ago

would be considered more relevant
than a similar level formed six months
ago (and not tested since).
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– Volume
• Greater volume at an S/R level indicates greater participation by traders
at that level… and so increases the relevance and strength of the level.
Increases in volume on tests of the support level

indicate greater relevance and strength for this level.
Support
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– Price behavior as it leaves the level
• Rapid price movement from an area, especially on strong volume,
indicates greater strength in the level, and greater likelihood of the level
holding when price again returns to the level.
Large range candles and increased

volume indicate a support level
(prior resistance) with greater
strength. We would expect this level
to hold should price return to it in
the near future.
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– Time
– Recency
– Volume
• Greater strength implies

– Greater confidence in the level holding
– Greater expected reaction should the level break
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How we use S/R
• Analysis
– Potential barriers to trend
– Potential targets for price trends
– “Higher timeframe S/R framework”
Resistance offers a potential barrier to our trend

Resistance offers a
potential target for
our trend
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How we use S/R
• Trading
– Trade targets
– Trade entry & stop

placement: Trade target
 Level holding
• Test of the level

• Breakout failure
 Level Breaking
• Breakout
• Breakout
Pullback
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How we use S/R
• Trading
– Trade targets
Test of S/R Trade Stop loss above resistance
– Trade entry & stop Trade entry short
placement:
 Level holding

 Level Breaking
• Breakout
• Breakout
Pullback
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How we use S/R
• Trading
– Trade targets
Stop loss above resistance
– Trade entry & stop Trade entry short
placement:
 Level holding Breakout Failure

Trade
 Level Breaking
• Breakout
• Breakout
Pullback
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How we use S/R
• Trading
– Trade targets
Breakout Trade Stop loss
– Trade entry & stop above
placement: resistance
 Level holding
• Test of the level Trade entry short

 Level Breaking
• Breakout
• Breakout
Pullback
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How we use S/R
• Trading
– Trade targets
– Trade entry & stop Breakout Pullback Trade

placement:
 Level holding 1 = Breakout through S/R

2 = Pullback to S/R
• Breakout failure 2
1
Trade entry long
 Level Breaking
• Breakout Stop loss below support

• Breakout
Pullback
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How we use S/R
• Key question for both analysis and trading:
– (Q) How do we know whether a level will break or will hold?
– (A) Momentum analysis
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Examples – Identifying S/R
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Examples
• Initial identification of S/R
• Marking up historical data
– Moving forward to examine subsequent interaction between price and S/R
– Studying Breakouts & Tests of S/R
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Examples – S/R & Price Interaction
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Dropping to the smaller “trading”

timeframe allows you to analyse the
areas of S/R and price interaction.
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Dropping to the smaller “trading”

timeframe allows you to analyse the
areas of S/R and price interaction.
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Alternate Methods of S/R
• Alternate Methods of S/R
– Swing Highs/Lows
– High of Day / Low of Day
– Gaps
– Opening Range
– Significant Reactions to News Events
– Round Numbers
– Pivot Points
– Fibonacci Ratios
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– Gaps
– Opening Range
– Round Numbers
– Pivot Points
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– Gaps
Gap Support
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– Gaps
– Opening Range
– Round Numbers
– Pivot Points
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– Opening Range
Highest
price of
first 5
minutes
Lowest Opening range

price of Opening range acts as support
first 5 acts as resistance
minutes
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– Opening Range
Opening range acts as resistance
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– Opening Range
Opening range acts as support
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– Opening Range
Opening range
acts as resistance
Opening range acts as support
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– Gaps
– Opening Range
– Round Numbers
– Pivot Points
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08:30
Fri 5th April
• Non-Farm
Payroll
economic
release
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• Price Action Based
08:30
Fri 5th April
• Non-Farm
Payroll
economic
release
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– Gaps
– Opening Range
– Round Numbers
– Pivot Points
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– Round Numbers
1.5200 round number level
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– Gaps
– Opening Range
– Round Numbers
– Pivot Points
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– Pivot Points
Pivot Points:
• R2 = PP + (H – L) = 14839
High: 14753 • R1 = PP + (PP – L) = 14677
Low: 14505 • PP = (H+L+C)/3 = 14591
Close: 14515 • S1 = PP – (H – PP) = 14429
• S2 = PP – (H – L) = 14343
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– Pivot Points
Open 17th April
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– Gaps
– Opening Range
– Round Numbers
– Pivot Points
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100.0%
61.8%
50.0%
38.2%
23.6%
0.0%
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Homework
• Open your trading platform and explore…
– Current data
• Initial identification of S/R
• Marking up charts
– Historical data
• Mark up historical charts and then move forward in time to examine
the price interaction with these levels.
– Did the price hold or break the level. Study it. Consider printing it out and building a
database of levels that broke and levels that held. Build experience in reading price and
identifying the clues to potential break.
– Note as well how you would adjust the levels and when you would remove them.
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Summary
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Support
• Support – An area below price which has the potential to halt and
possibly reverse any bearish price movement down into that area.
Support
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Resistance
• Resistance – An area above price which has the potential to halt and
possibly reverse any bullish price movement up into that area.
Resistance
Level
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Change of Polarity
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Change of Polarity
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– Time
– Recency
– Volume
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How we use S/R
• Analysis
– Potential barriers to trend
– Potential targets for price trends
– “Higher timeframe S/R framework”
• Trading
– Trade targets
– Trade entry & stop placement:
 Level holding
– Test of the level
– Breakout failure
 Level Breaking
– Breakout
– Breakout Pullback
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– Gaps
– Opening Range
– Round Numbers
– Pivot Points
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Advanced S/R Concepts
• How Support and Resistance are created.
• Signs of price strength or weakness on interaction with S/R
• Supply/Demand areas vs Support/Resistance areas
• Random levels vs Real levels
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Coming up next…
Module 4 – Chart Analysis

Part F: Charting Patterns - Macro
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Contact Details
• Lance Beggs
• Email:
support@yourtradingcoach.com
Thank You!
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YTC - Introduction to Trading -

Module 4: Chart Analysis

© Copyright 2013. Lance Beggs. All Rights Reserved.

• Before commencing this course, please familiarize

• If you are unsure about the contents of the

• We don't know you so any information we provide does not

• Before investing or trading on the basis of our material, we

© Copyright 2013. Lance Beggs. All Rights Reserved.

© Copyright 2013. Lance Beggs. All Rights Reserved.

© Copyright 2013. Lance Beggs. All Rights Reserved.

© Copyright 2013. Lance Beggs. All Rights Reserved.

© Copyright 2013. Lance Beggs. All Rights Reserved.

© Copyright 2013. Lance Beggs. All Rights Reserved.

© Copyright 2013. Lance Beggs. All Rights Reserved.

© Copyright 2013. Lance Beggs. All Rights Reserved.

© Copyright 2013. Lance Beggs. All Rights Reserved.

• The process used to identify S/R levels

© Copyright 2013. Lance Beggs. All Rights Reserved.

(ie. Change of polarity)

© Copyright 2013. Lance Beggs. All Rights Reserved.

(ie. Change of polarity)

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(Q) How many swing highs or

(A) 2 swing highs or lows

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(Q) Is S/R an exact price level? How close is acceptable?

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(Q) What timeframe should we use?

Common advice is to vary timeframes

Trading Timeframe Higher Timeframe

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(Q) What if there are too many levels?

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Q. When should we remove levels?

No reaction (1) No reaction (2)

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• The process used to identify S/R levels

• Number of swing highs/lows

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... Is not considered as significant nor

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This level formed only a fortnight ago

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Increases in volume on tests of the support level

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Large range candles and increased

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• Greater strength implies

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– “Higher timeframe S/R framework”

Resistance offers a potential barrier to our trend

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– Trade entry & stop

• Test of the level

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• Test of the level

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 Level holding Breakout Failure

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• Test of the level Trade entry short

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– Trade entry & stop Breakout Pullback Trade

 Level holding 1 = Breakout through S/R