How to Draw Support and Resistance - Basics
For starters, I would like to find as many horizontal peaks and valleys on a chart and connect them with a line. The diagonal peaks and valleys can be higher highs, lower lows, lower highs, and higher lows. These connections are referred to as trend lines. In particular, peak levels are called resistance levels, and valleys are support levels.
Drawing support and resistance levels is key to becoming a successful trader. Unfortunately, there is a small learning curve with learning a new skill like how to draw S&R. We wish that there was an easier way. However, this takes a lot of practice, which entails studying hundreds of charts over several months.
Trading takes hard work, and there is no easy path to success. Just improve each day, and soon, it will become instinctual and automatic.
How to Draw Horizonal Support and Resistance Levels
This is an example of $CAT on a daily chart. The most basic form of technical analysis is knowing how to draw horizontal support and resistance levels. Always look left on a chart and extend your lines to the future. Price action is always affected by what has happened in the past. It’s important to locate as many peaks and valleys as possible on the left side of the chart. You’ll see that this chart has several horizontal lines.
Notice how previous support and resistance levels affect near-term price action. Previous support levels become resistance levels and vice versa. This is the most fundamental aspect to learn when trading.
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1. Angular Momentum
Drawing resistance and support lines is like those “Magic Eye” pictures. Adjust your eyes to see the picture.
The chart example above is of $AAPL on a daily chart. Notice the nice uptrend. The trendlines are almost perfect. There were three touches to support and three touches of resistance. You’ll also notice that price action bounced nicely off the moving average lines. This example shows you how to draw angular support and resistance levels.
2. "The Magic Eye Reveals"
At first, charting a stock and learning how to draw support and resistance levels seems foreign, but over time, it becomes more familiar. Candlesticks form patterns, and those patterns show key support and resistance levels.
The process seems tedious at first, and that’s why it’s so important to persist and push through. As a result, over time, just like those “Magic Eye” pictures, the patterns and lines pop right out like they were there all along. Some popular trading strategies to check out are our learning to buy the dip and gap and go posts.
How Do You Determine Support and Resistance?
- Find as many previous highs and lows as possible on a chart. The more, the stronger the floors and ceilings.
- Watch for buying and selling pressure at these levels
- The more buying and selling volume, the more powerful the support and resistance
What Is The Best Charting Software?
There are many different charting software services to use. One of our favorite free ones is ThinkorSwim. Sign up for an account with them, but you can open a virtual account without having to fund it.
ThinkorSwim charting is incredible. Learning at first is a bit cumbersome, but it’s well worth the effort.
Stockcharts is another really good charting service to use. They have both a paid and free version. The free version is basic but can be sufficient for swing trading or long-term options trading. We recommend using TOS to chart for day trading.
How Do You Identify a Trend?
First, connect at least two to three higher and lower highs in an uptrend. Connect at least two to three lower highs and two to three lower lows in a downtrend. The main point is that you need to connect as many peaks and valleys as possible.
How to Draw Support and Resistance - With Precision
Learning how to invest in the stock market is very important. Technical analysis indicators such as simple moving average (sma), Exponential moving average (ema), vwap, macd indicator, level 2, and time and sales can help you see the big picture. Add the indicators to your chart so it will be quicker to find more precise levels to enter a stock and get the best entry possible.
Key Nuggets Of Wisdom
How to Draw Support and Resistance - Summary
The stock market takes time to learn how to draw support, and resistance levels are the key to your success. So, we always drill this into our traders’ minds in our trade rooms. We want people to understand the big picture of support and resistance, be patient, and use their tools to find a good entry.
Frequently Asked Questions
To draw support and resistance zones, you want to connect two to three peaks and valleys on a chart. Look for both horizontal and angular levels. Three peaks or more make the levels more valid.
Support and resistance can be drawn in all chart periods. Daily, weekly, and monthly charts are good for swing trading. Hourly, 5-minute, and 1-minute charts are good for day trading.
The drawing tools in your charting platform are used to draw support and resistance levels. They are called horizontal lines and trendlines. The names vary for each platform.