Types of Support & Resistance (S&R)
The support and resistance (S&R) are specific price points on a chart expected to attract the maximum amount of either buying or selling.
The support level is a price point on the chart where the trader expects maximum demand. Whenever the price falls to the support line, it is likely to bounce back. And multiple bounces from the same support level means it’s a strong support level.
The resistance level is a price point on the chart where traders expect maximum supply. Therefore, the price starts falling from that level. If the price bounces back multiple times from the same price level, it's a strong resistance level.
In the above sample image, each circle denotes the bouncing level points for both support (bottom green line) as well as resistance(top green line).
We will use SS&R (Strong Support & Resistance) and VSS&R Very Strong Support & Resistance terms multiple times throughout this book so you need to understand them deeply.
Without deep knowledge of S&R lines, chances are very high that you may wipe out your entire trading capital very soon. Therefore take your time to learn how to draw the S&R line properly before jumping into live trading.
Types of Support and Resistance lines:
- Bouncing Line
- Lonely candle
- Doji candle
- Stack area
Bouncing line:
A price level or point where the market bounces multiple times is called a bouncing line. The bouncing line is a 'Strong Support &
Resistance (SS&R)' level. Refer to the below diagram for an in- depth understanding.
The above image is the best example of a bouncing line S&R. The bottom line in green colour is a Strong S&R line or SS&R line because the market bounced back five times from the same price level.
Lonely candle:
As the name suggests, a lonely candle is a single opposite colour candle in the current loop. Say for example there is a buyer's loop
or trend having multiple same colour candles(green candles) and one opposite colour candle (red candle) get formed, called a lonely candle. This lonely candle’s whole area is itself a strong S&R. The power of this lonely candle's S&R varies on the location of the candle formation. The most powerful lonely candle is which appears before the loop end. Refer to the below example for better understanding.
Doji candle:
Doji candle is an indecision candle so we consider this candle as a VSS&R (Very Strong Support &Resistance) line. We create an S&R line on the body of the Doji candle. Usually, we don’t trade on Doji candles except for some sure-shot signals which you are going to learn in this book.
Stack Area:
A Stack area (also known as a stuck area) is a market phase where the market is stuck within a limited area. This whole stack area is strong support and resistance. For more detail about the stack area, we will discuss it in detail in the types of market section later on.
Trading in a stack area is very risky so we trade only with the help of sure-shot signals.