Here we have pound-dollar on a daily chart and I have received a question from a student. How to draw
support and resistance? In this video,
I'm going to show you how to draw support and resistance in order to be sure that you will not miss
any key level in the future.
The technique that I'm going to show you is based on turning points or you can call them swing points.
What is a swing point? It is just a point where you can see that the price deviates from its direction.
So simply a point where the price changes direction.
Let's try to identify all the swing points and also draw a line that may work as a support or a resistance.
Starting from here, you can see that the price was going a bit up and then suddenly changes direction
and starts to go down.
This can be identified as a turning point, so I can draw my first key lever here.
Then the price goes down until here and it changes direction again.
So another swing point is here and I draw my second horizontal line.
You don't need to be extremely accurate with the lines, because support and resistance are areas
of price, they are not exact prices.
Then the price goes up and here and I can draw another line because this is another turning point.
Let me try to fix this... ok.
As you can see, after this level the price starts to go down until it reaches this point and it changes
direction again.
So we have another swing point here and we draw another line. Then it goes up and down, it is between
two key levels, in a sideways trend I would say.
Then it goes up till here and we can draw another line to identify this level.
It's not like a major swing point but it is better to consider it.
The price goes back to this support, it goes up again and stays for a while on this level before going up
until it reaches a new high here and we can draw another line.
The price goes back. We can identify here another swing point and so a key level.
I'm going to draw a line. Then it goes back, but it is pretty much on this line,
so I'm not going to draw another one.
The price goes down until here
then, so I will draw another line to identify this key level. The price goes up again until here and we
have another level. Then it goes a bit up and down between these lines. Down again on this level and up again
on this other level.
It reaches then another important lever here, goes back on this support, goes back on this resistance
and it goes all the way down until here, where we have another support.
You can see that this support was working for a while and was stopping the downtrend, but then the price
went down anyway and now it is on another good support.
Now you have many lines. I would keep all of them,
but if you want, you can change the color for the ones that seem to be more important.
Remember that the more the price has been rejected by a support or resistance, the stronger the level.
So you can identify the levels that have worked in the past and change the color for them to give more
importance to those levels.
For example, I can see that this line worked quite well as a resistance here
and then it worked very well as a support, at least a couple of times here.
So this is a very important level. Probably, this one is not so important at the moment, because we didn't
have any other chance to verify if this is a good level, because the price
only went there once. So this is how you draw support and resistance. At the moment the price is close
to an important support
and if we zoom in, we can also see that there is an important bullish signal. There is a bullish
engulfing pattern.
So this represents a great opportunity to enter a long trade.