How to Find Support and Resistance Using Price Action

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By Alyaziah Hayat
Published: Feb 1, 2023
Last Updated: Feb 23, 2023

Price action is one of the most popular trading strategies among forex traders. These methods rely heavily on support and resistance level. How to find these levels?

Price action is a phenomenon that helps you determine support and resistance levels on a chart. This is a popular trading strategy among both beginners and experts. Here is how to find support and resistance using price action:

price action

What are Support and Resistance?

Price levels of support and resistance are depicted as horizontal lines on a price chart. These price levels are formed when price bar highs are connected to other price bar highs or price bar lows are connected to price bar lows. When the price movement of a market turns around and moves in the other direction, leaving a peak or trough (swing point) in its wake, a support or resistance level is created in the market.

Trading ranges may be defined by support and resistance levels. These levels can also be observed in trending markets when a market retraces its previous movement and leaves behind swing points. These levels of support and resistance will frequently be respected by price. To put it another way, they have the propensity to restrain price movement, that is, until the price, of course, bursts through them.

See Also:
Which is Better, Price Action or Indicator?

Support and Resistance using Price Action

A price action trader's best buddy is the market's support and resistance levels. An entrance scenario can likely occur when a price action entry signal arises at a crucial level of support or resistance. A good risk-reward ratio is typically formed at key levels of support and resistance in a market.

The key level provides you with a barrier to place your stop loss order beyond. Because it has a high probability of being a turning point in the market, there is usually a good risk-reward ratio formed at key support and resistance points. The price action entry signal confirms that the price may move away from the important level of support or resistance, which may take the form of a pin bar signal or another signal.

Tips When Using Price Action

Try not to go crazy attempting to draw every level on your charts. This may take a very long time. The key daily chart levels are the essential ones. Thus, your goal should be to locate them. We presented some instances of critical daily chart levels above.
When you create horizontal lines of support or resistance, they won't always hit the precise high or low of the bars that they link. This is because those highs and lows aren't always consistent. There are situations in which it is acceptable for the line to connect bars that are slightly below the high or slightly above the low. Realize that this is not an exact science. Rather, it is a talent and art that you will become better at with practice, experience, and the passage of time. This is the essential thing to keep in mind.
If you are unsure whether or not to act on a specific price action entry signal, you should ask yourself whether the price is currently trading at a crucial level of support or resistance. It is possible that it would be more beneficial to pass on the signal if it is not at a crucial level of support or resistance.
Suppose a price trading technique like a pin bar or inside bar method originates from a confluent level of support or resistance in a market. In that case, it has a considerably larger probability of success than if it forms from any other level in the market.

Price action is not hard to understand, but for new traders, it might take some time to grasp it. To learn about this strategy, new traders can start by reading price action books available online.

Alyaziah Hayat

I've been writing as a hobby for about 10 years but I just started doing it professionally. I've been forex trading for about 2 years now mainly focusing on XAU/USD but I also deal with the main currencies when the market is positive. I've also dealt with different brokers and trade using MetaTrader 4.

11 Comments

Halsey

Jun 7 2023

There are many ways to determine support and resistance in forex trading. You can do this just by looking at price charts, but you can also use specific tools (technical indicators). You can also combine the 3 simple ways above to find a powerful support or resistance level, for example, a low swing level that corresponds to a psychological level, or the R2 pivot level that corresponds to a high swing level...

How to determine Support and Resistance based on Pivot Points? why is the accuracy of this pivot point level lower than the others? when viewed from the acquisition method, this is actually the most reliable because the calculation is the clearest. Thank you

Bilqish

Jun 8 2023

There are many ways to determine support and resistance, but many traders use three options. That is, using psychological levels, swing high and swing low levels, and levels are calculated using pivot points.

Furthermore, in fact, because support and resistance levels are based on market sentiment, not market sentiment, the accuracy of support and resistance levels calculated based on pivot points may differ from swing high or swing low levels and psychological levels lower than when observed directly. Get up. Pivot point support and resistance levels are commonly referred to by day traders, especially when there are no significant support or resistance levels during a trading period.

Estrith

Jun 15 2023

I have a question sir, How do you determine Support and Resistance based on Pivot Points? why are the resistance and support levels strong with horizontal lines? please help me thank you, sir

George

Jun 16 2023

Day traders like to use Pivot Points to determine Support and Resistance by calculating closing and opening prices daily (Daily Pivot), although there is also a Weekly Pivot. Even though it can sometimes meet expectations, the accuracy of Support and Resistance based on this Pivot Point is lower than at other levels.

On the other hand, the resistance and support levels are made based on observations and in the form of horizontal lines reflect the actual state of market sentiment, while those created from pivot points are based on mathematical calculations, not based on actual market sentiment. The one based on horizontal lines is much more valid. Note the following resistance and support levels on the EUR/USD weekly which have remained valid over the years:

support and resistance

The 1.3670 level occurred in December 2004 and was again adhered to in January 2013.
The 1.1876 level occurred in June 2003 and was again obeyed in February 2006 and June 2010.
The 1.0462 level occurred in August 1997 and was again adhered to in March 2015.

Tabhita

Jun 25 2023

When it comes to determining support and resistance levels in forex trading, there are different methods available. One common approach is to use pivot point levels, which are calculated based on past price data. However, the accuracy of pivot points as support and resistance levels are considered relatively low compared to psychological levels or price swings.

So, how do you determine psychological levels in your trading? Do you rely on specific price points or key levels that have shown resistance or support in the past? Additionally, how do you assess the strength and reliability of these levels?

One way to gauge the strength of support and resistance levels is by observing price behavior. If a price has failed to break a certain level in the past, it suggests that it may struggle to breach that level again in the future, making it stronger as a support or resistance. Have you noticed this pattern in your trading experience?

Larry Marry

Sep 2 2023

I think at this point most traders know about metatrader 4 being the most dominant slash popular trading platform in the market right now. How could they not though, the platform is literally everywhere it's offered by practically every major brokers out there and it's recommended by loads of senior traders as well. MT4 plugins however, are not that common apparently. I asked some of my fellow trader friends and many of them said they didn't use any plugins or add-ons to their platforms. My question is how many plugins can you use at the same time and what are other useful plugins would you recommend? Thanks in advance.

Barbara

Sep 3 2023

Oh there are many plugins that you can use right this second and most of them are free! MT4 is a terrific platform on its own, but there are limitations that might be quite bothersome for advanced traders. With MT4 plugins, you can enhance the functionalities of your platform. I believe technically there's no limit as to the number of plugins that you can run simultaneously, but please keep in mind that running loads of plugins or EAs may slow down your computer.

As to the best plugins to use, I have some in mind although in reality the choice should depend on your personal needs. For traders in general, I would recommend installing the AutoChartist plugin, which offers automated chart pattern detection and real-time warnings. It's useful for all traders as it provides various market data and insights. Signal Centre is also really good to get trading signals, even though you're not supposed to rely on them 100%. Still, it's a great tool to gain ideas and insights.

Phil Khun

Sep 13 2023

Actually, I'm too beginner to understand the pin bar pattern. I've seen extraordinary things in pin bars. there are long tails guys, guys. but I don't know, what are the potential advantages and disadvantages of using a long-tailed pin bar compared to other candlestick patterns?

Leopard

Sep 15 2023

Using long-tailed pin bars as a trading signal offers several potential advantages and disadvantages compared to other candlestick patterns.

Advantages of Long-Tailed Pin Bars:

Strong Reversal Signals: Long-tailed pin bars are considered to be strong reversal signals. The long tail or shadow indicates that price temporarily moved in one direction but was rejected and closed in the opposite direction. This rejection suggests a potential shift in market sentiment and can provide early indications of trend reversals.
Clear Entry and Exit Levels: Long-tailed pin bars provide clear entry and exit levels for traders. The high or low of the pin bar serves as a natural reference point for placing stop-loss orders and take-profit targets. This characteristic allows for relatively straightforward trade management and risk control.
Simple and Objective Pattern: Long-tailed pin bars have a simple and objective pattern, making them accessible to traders with different levels of experience. The criteria for identifying a long-tailed pin bar are relatively straightforward, such as the length of the tail in relation to the body and the presence of support or resistance levels. This simplicity can help traders quickly identify potential trading opportunities.
Applicable to Various Timeframes: Long-tailed pin bars can be effective on various timeframes, from intraday trading to longer-term investing. This versatility allows traders to adapt the strategy to their preferred trading style and time horizon.
Compatibility with Other Strategies: Long-tailed pin bars can be used in conjunction with other technical analysis tools and trading strategies. They can complement trend-following techniques, support and resistance levels, moving averages, and other indicators to enhance trading decisions and confirm potential reversals.

Disadvantages of Long-Tailed Pin Bars:

Subjectivity in Identification: While the criteria for identifying long-tailed pin bars are relatively straightforward, there is still some subjectivity involved. Traders may have different interpretations of what qualifies as a valid long-tailed pin bar, leading to inconsistencies in trade selection. This subjectivity can affect the accuracy and reliability of the trading signals.
False Signals: Like any other trading pattern, long-tailed pin bars are not infallible, and false signals can occur. Market volatility, random price fluctuations, or news events can create pin-bar-like formations that do not result in meaningful reversals. Traders must exercise caution and use additional confirmation signals or filters to reduce false signals.
Reliance on Historical Patterns: Long-tailed pin bars are based on historical price patterns and market behavior. While they can provide valuable insights, past performance does not guarantee future results. Market conditions and dynamics can change, rendering the effectiveness of long-tailed pin bars less reliable over time.
Limited Market Scope: Long-tailed pin bars are primarily applicable in markets where candlestick charts are commonly used, such as forex, stocks, and commodities. In markets that rely on different charting methods or have limited price data availability, the usefulness of long-tailed pin bars may be limited.
Risk of Late Entries: Long-tailed pin bars signify potential reversals after the formation of the candlestick pattern. Traders who wait for the confirmation of a long-tailed pin bar may enter the trade relatively late compared to those who anticipate the reversal. This can result in missed opportunities or reduced profit potential.

Kise Ryota

Sep 21 2023

How can we know if a website is simply another copycat of the original? Every time I visit a website, my antivirus sends me a warning about its safety. Additionally, the website has SSL encryption, making it secure to enter. However, assuming the copycat website is extremely sophisticated and has replicated all the aforementioned features perfectly, what can we do to identify and avoid falling into the trap of copycat websites? Any suggestions on how to protect ourselves from these deceptive websites?

Urashini

Sep 22 2023

I totally get your concern about those sneaky copycat websites! It's important to be on the lookout and protect ourselves from falling into their traps. Here are a few simple tips that I got to help you stay safe:

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Check for security features. While SSL encryption is a good sign, it's not foolproof. Look for other trust indicators like security seals or trust logos on the website.
Be wary of sketchy emails and links. Don't go click-crazy on links you receive in emails or from random sources. Copycats love to trick people with phishing emails and dodgy links. Always double-check the sender's authenticity and hover over links to see if they match the official website.
Look for contact info and customer support. Legit websites usually provide clear contact details like phone numbers, emails, and physical addresses. If a website lacks that info or gives you the runaround, that's a red flag right there.
Keep your antivirus game strong. Make sure you have a reliable antivirus program and keep it up to date. It'll help sniff out and block malicious websites and suspicious activities.
Trust your gut.If something feels fishy or too good to be true, trust your instincts. It's better to be safe than sorry. Steer clear of websites that give you that uneasy feeling.

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