Which Time Frame Is Best For Support And Resistance
All support and resistance levels don’t have the same value in all situations.
As a trader, it will be of great importance for you to know the most valuable levels when working these two chart zones.
Some zones play a crucial role for breakouts, while others are very significant for reversals.
The concept of trading these two zones is highly discussed in technical analysis.
Traders use them to refer to price levels that act as barriers, preventing the price of a security from being pushed in a particular direction.
Technical analysts view these zones as levels at which the price action is most likely to pause or change direction.
This makes them very important tools when it comes to price analysis and making trading decisions.
The idea of identifying these two levels may seem to be easy, but you will later realize that these two levels come in different forms, and they are not easy to master as you might think.
In this article, I will help you know the best time frame for support and resistance.
Let’s start…
These two are important points where the forces of demand and supply meet.
They are seen by technical analysts as important when determining the market psychology as well as demand and supply.
When the two levels are broken, traders assume that the demand and supply forces that created them have moved, with a possibility of establishing new levels.
The two identify levels at which the price trend has a higher probability of halting and probably changing direction.
It can be a particular price or a price area.
The interpretation of the significance of a level is determined by the time frame of the trader.
It is recommended that these two levels should be used together with other indicators like moving averages when relying on them to make trading decisions.
However, you can trade the S&R zones using the price action alone.
The support level is where buyers join the market and become more aggressive, hence, they prevent the price from going further lower.
As the price declines towards the support, selling pressures reduce as a result of lower price, and buyers in turn become aggressive because of the lower price.
Eventually, the support level will be broken and the price will decline below it.
The price level will then become the future resistance level.
The resistance level is where sellers jump into the market and become more aggressive, preventing the price from going higher.
As the price moves towards the resistance, the buying pressure declines because of the higher prices.
At the same time, selling pressure increases because of the higher prices.
The resistance level will finally be broken and the price will rise above it.
That price then becomes the future support level.
Consider the chart given below…
The above chart shows the formation of the support and the resistance lines on the price chart of a forex pair.
The support is the green line running horizontally and marked as Support.
The resistance is the red line running horizontally and marked as Resistance.
A closer observation of the support line shows that the price tried to break through the zone severally.
This is the time when the sellers are controlling the market.
They keep on pushing the price of the forex pair lower, but the selling pressure declines because of the lower prices.
The buyers joined the market to purchase the forex pair at the lower prices, pushing the price higher.
This led to the formation of the support line.
The resistance zone was formed at a time when the buyers are controlling the market.
The buyers kept on pushing the price of the forex pair higher.
The price attempted to break out through the resistance line severally, but it could not.
The reason is that the sellers joined the market to sell at the higher prices, pushing the price of the forex pair lower.
The buying pressure was also reducing because of the higher prices of the forex pair.
This led to the formation of the resistance line.
Support and Resistance Role Reversal
In technical analysis, when a support or resistance level is broken, its role changes.
If the price manages to break out through a resistance line, the resistance line becomes a support line.
On the other hand, if the price manages to break through a support line, the support line becomes a resistance line.
When the prices moves past the support or resistance level, traders see it as a shift in demand or supply, and the breached level reverses its role.
Consider the chart given below…
The above chart shows a resistance zone turning out to become a support zone.
The resistance zone has been shown in a red line and marked as Prior Resistance.
The chart shows that the price tried to break out through the resistance line upwards for some time.
This means that the level is acting as a resistance zone.
It finally managed to break out through the resistance line in an upward direction.
At this point, the role of the resistance line changes and begins to play the role of a support line.
This has been shown by a green horizontal line marked as Becomes Support.
Consider the chart given below…
This means that the level is acting as a resistance zone.
It finally managed to break out through the resistance line in an upward direction.
At this point, the role of the resistance line changes and begins to play the role of a support line.
This has been shown by a green horizontal line marked as Becomes Support.
Consider the chart given below…
The above chart shows a support line turning out to become a resistance line.
The support line has been shown by a green horizontal line marked as Prior Support.
At this point, the sellers are controlling the market and they are trying to push the market lower.
The price tries to break out downwards through the support line severally but it fails.
The reason is that the buyers also join the market and try to push the price of the forex pair higher.
This led to the formation of the support line.
Finally, the sellers managed to overpower the buyers, and the price broke out through the support line downwards.
The role of the support line changed and became a resistance line.
This has been shown by a red horizontal line marked as Becomes Resistance.
The previous support line is now acting as a resistance line.
The price attempts to breakout upwards through the resistance line.
This is as a result of buyers who are controlling the market.
However, the sellers quickly join the market, pushing the price of the forex pair lower.
That’s how the resistance line was formed.
Types of Support and Resistance Levels
There are three types of S&R levels.
Although all the three are useful, most traders tend to develop a preference for one type and master it for trading purposes.
Let’s discuss the three types of S&R levels…
#1: Fixed S&R Levels
These are S&R levels that are not changed.
They remain valid at the same level until the time the price manages to break through.
Examples of fixed levels include round levels, tops and bottoms, candle opens and closes, candle highs and lows, and yearly lows and highs.
These levels never change, but they remain the same regardless of changes in the movement of the price.
This means that a round level of 1.10 will remain at that level, and it will not change to 1.1050.
Always remember that all S&R zones are rough zones, but not precise.
A rough level of 1.10 may not change, but that doesn’t mean that its effect will only be felt at 1.10.
The price may reverse and bounce around, near 1.10, at points like 1.095 and 1.1020.
#2: Dynamic S&R Levels
These are S&R levels that change.
The S&R is recalculated every time after a new bar, candle, or any other price unit arrives on the chart.
The trader then uses the new S&R level to make his trading decisions rather than the previous level.
Examples of dynamic S&R levels include the parabolic, moving averages, the Ichimoku, and the Admiral Keltner.
#3: Semi-dynamic S&R Levels
The semi-dynamic S&R levels lie in between the fixed and dynamic levels.
Whereas fixed levels remain constant, and dynamic levels change at different rates, the semi-dynamic levels change at constant rates.
A good example of a semi-dynamic S&R level is the trend line, which normally changes at a fixed rate per candle.
If you placed it with an up or down angle, the trend line will move at a similar rate into that direction, with every new candle.
Other examples of semi-dynamic S&R levels include Pivot Points (which are re-calculated automatically based on the period) and Fibonacci levels (which can be moved by a trader).
The dynamic and semi-dynamic levels differ on the fact that the semi-dynamic levels change at a fixed rate per candle, while the dynamic levels change at a non-fixed rate per candle.
The S&R levels can be automated or manually inserted into a price chart, depending on the method that you choose to use.
How to Identify Support and Resistance Levels
The S&L levels are very important to you as a trader.
This means that it is of great importance for you to know how to identify them.
There are different tools that you can use to identify these levels on a price chart.
Each trader will have his own preference when it comes to the choice of the S&R tools.
Some traders may prefer to use only Fibonacci levels, but others may choose to mix pivot points and moving averages.
There is no correct answer when it comes to selecting the tools to use.
The best approach is to identify the tool or tools that work well for your trading psychology as well as with your trading system and method.
Since the preferences are subjective, it makes sense for you to test the different S&R tools of a few days or weeks.
So, just that an S&R tool works for a certain trader doesn’t mean that it will work well for you.
Here are the steps that you need to follow in order to choose an S&R tool…
Step 1: Testing and trying phase- In this step, you should try as many S&R tools and indicators as you can.
You can try any S&R tool here as there is no limit.
There are many tools available for you, so just test each of them and write down the ones that seem to work well for you.
Step 2: Research the Chosen tools- After you have created a shortlist of the tools that seem to work well for you, take some time to study and understand them in depth.
Do adequate research to familiarize yourself with all the rules behind each of them.
Also, make sure that you understand all the assumptions behind them.
Step 3: Practice and test the tool- After you’ve narrowed the list of tools and understood how to use each of them, you can practice and test each of them.
Ensure that you know the methods that seem to work well with each of the tools.
This will help you know how to use each tool in depth.
Step 4: Decide- You can now choose the S&R tool/s that work well with your trading psychology, trading strategy, and your allowed time.
This will be determined by your findings from the previous steps.
Step 5: Integrate the tool with your trading plan- now that you have tested the tool, you can completely integrate it into your trading plan.
This will make your trading easy and increase your chances of becoming a successful trader.
You also need to know the times when you should use each tool and when not to use it.
It will also be important for you to know other tools or indicators that should be used in conjunction with the tool.
Here is the list of the tools that you can use to identify the S&R levels…
#1: Peaks and Troughs
After you open a chart on your trading platform depending on the time frame that you are using, identify the highest peak formed by the price on the chart and mark it as the All Time High (ATH).
Also, identify the lowest bottom formed by the price on the chart and mark it as All Time Low (ATH).
Consider the chart given below…
The above chart shows a time when the price of a forex pair is in a downtrend.
This has been shown by the red arrow marked as Downtrend.
Each peak and trough has been marked using a short horizontal line.
Whenever the price is in a downtrend, each lower low is a support level while each lower high is a resistance level.
The ATH (All Time High) and the ATL (All Time Low) levels have been shown on the chart.
The ATH is the highest level that has been reached by the price during the downtrend.
The ATL is the lowest level that the price managed to reach during the downtrend.
It’s also possible to identify S&R levels when the price is in an uptrend.
You should first mark the ATH and the ATL levels, which are the highest and the lowest points reached during the uptrend respectively.
Each peak formed during the uptrend should be shown using a horizontal line and marked as a Higher High.
Each trough formed during the uptrend should be shown using a horizontal line and marked as a Higher Low.
Each higher high should act as a resistance level while each higher low should act as a support level.
#2: Support and Resistance from Previous Time Frames
You can also identify the S&R levels by looking in higher time frames to look for the levels from there.
For example…
If you are currently using a 15 minute time frame, you can look in the 1 hour time frame to incorporate the S&R levels from there into the 15 minute time frame.
You can then look into a 4 hour time frame and take the S&R levels to put in your current 15 minute time frame.
It’s worth noting that if the S&R levels from the higher time frames match the ones of the lower time frames, it will be more important because it means that there are stronger S&R levels.
It’s also an indication that they have the same price levels.
#3: Moving Averages
You can use moving averages to identify the S&R levels.
The moving average is a technical indicator added on top of the price action to show the price behavior.
When the price is in a downtrend, the moving average acts as a resistance line.
The price will bounce off the moving average and fall back down.
Consider the chart given below…
The above chart shows the 15-period moving average added on the price chart of a forex pair.
The price has been in a downtrend for some time.
The price tries to break through the moving average upwards but keeps on failing.
Instead, it hits the moving average and bounces back.
This shows that the moving average is acting like a resistance line.
So, the moving average acts as a resistance line when the price is in a downtrend.
The vice versa is true when the price is in an uptrend.
The moving average in this case acts as a support line.
The price should attempt to break through the moving average downwards, but it should bounce off it and fall back up.
Consider the chart given below…
The above chart shows the 15-period moving average added on the price chart of a forex pair.
The chart shows that the price action has been in an uptrend for some time.
The price hits the moving average, trying to break through it downwards.
However, the price bounces off it and moves upwards.
This has happened throughout the uptrend and the price never managed to break out through the moving average downwards.
So, when the price in an uptrend, the moving average acts as a support line.
This type of support is known as a dynamic support since the level changes each time the moving average moves.
Note that in this case, we have used the 15-period moving average.
However, it’s possible for you to use any period for the moving average when determining the S&R levels.
Note that there are different periods for the moving average.
You can also use either the simple or the exponential moving average.
#4: Fibonacci Levels
You can also use the Fibonacci retracement levels to find the S&R levels.
The most common Fibonacci levels among forex traders are 23.6%, 38.2%, and 61.8%.
After a price has made a significant move, either up or down, it will often make a significant retracement of the original move.
During the occurrence of this price retracement, the support or resistance levels will be formed at or near the Fibonacci retracement levels.
If the price is in an uptrend, mark the Fibonacci retracement levels from ATL to ATH.
Of course, the price will make an upward move and retrace back.
Where the price rests for some time should become the support level.
Also, after the ATH has been penetrated, you can use that as the new support level.
When the price is in a downtrend, you should also mark the Fibonacci retracement levels from the ATH to the ATL.
The price will make a bearish move and then make a retracement.
The retraced price will then reach the Fibonacci levels, and these retracements can be used as the resistance levels.
#5: Trend Lines
Trend lines can help traders identify the S&R levels.
An uptrend can act as a support, while a downtrend can act as a resistance.
The price normally moves above an uptrend, hence, the uptrend can be used as a support.
Also, price tends to move below a downtrend, hence, the downtrend can be used as a resistance.
Consider the chart given below…
The above chart shows a downtrend line drawn on the price chart of a forex pair.
The downtrend line is the red line pointed to by a black arrow on the chart.
The price of the forex pair itself is in a bearish trend.
Many are the times that the price attempts to break through the trend line upwards.
However, the price instead bounces off the line and makes a retracement.
Hence, the trend line is acting like a resistance line.
Consider the chart given below…
The above chart shows an uptrend line added on the price chart of a forex pair.
The uptrend line is the green line drawn on the chart and pointed to by a black arrow.
The price of the forex pair is in a bullish trend.
The chart shows that the price tried to break through the trend line downwards many times.
This has been shown by the many bearish (red) candles formed during the bullish move.
However, the price kept on bouncing off this line.
Hence, the uptrend line is acting like a support line.
When drawing a trend line, whether the uptrend or the downtrend, it is recommended that you have at least two peaks for a downtrend or at least two bottoms for an uptrend.
Such a trend line will be referred to as a tentative trend line.
If you look at my two charts above showing how to draw the trend line, I have used at least two bottoms for the uptrend and at least two peaks for the downtrend.
If you manage to get three or more peaks or bottoms, the better.
These will give a valid trend line.
The more points that a trend line has, the more valid and confirmed the trend line is and the more important it becomes.
When the price is making a sideways movement, forming what is popularly known as a Range, it creates very strong support and resistance levels.
The reason is that prices test these levels several times and they bounce between these levels a few times.
So, the price hits the resistance level and bounces back, it hits the support level and bounces back, and this continues for some time.
Once you have used all the above methods to find the S&R levels, you can combine all the levels that you have obtained and then choose the most important ones.
The most important ones are those that coincide when you use the different methods that have been discussed above.
For example, if you get a support that coincides with a 61.8% Fibonacci retracement and also with the EMA (55), such should be taken as a potentially strong support.
What is the Best Way to use Support and Resistance Levels?
The best way is to use the S&R levels on many time frames for different purposes.
It’s true that traders can use as many time frames as they wish, but it is recommended that they use only three charts.
If you use more than three charts, they will confuse you, and if you use less than three charts, you will get less depth and insights.
We can divide the three time frames into higher, middle, and lower time frames since the three time frames that are used depend on the type of trader that you are.
Logically, a long-term trader will use a different set of charts from what an intra-day trader uses.
Here is a summary for different types of traders…
1. * Lower- daily chart
* Middle- weekly chart
* Higher- monthly chart
1. * Lower- 4 hour chart
* Middle- daily chart
* Higher- weekly chart
1. * Lower- 1 hour chart
* Middle- 4 hour chart
* Higher- daily chart
1. * Lower- 15 minute chart
* Middle- 1 hour chart
* Higher- daily chart
1. * Lower- 5 minute chart
* Middle- 15 minute chart
* Higher- 4 hour and/or daily chart
The higher time frames are the best for finding critical levels, which have the strength to stop an impulsive price action or trend from continuing.
Traders must observe such levels for possible reversals and use them for targeting, but they must be careful when trading into these levels whenever the price is nearby.
Traders should use the middle time frames to find breakouts or continuation spots for a trend, or tops and bottoms within a range.
These levels are not strong, huge, and as important as the S&R levels of the higher time frame, and they are commonly used for bounces at retracement levels, or with trend breakouts.
The lower time frames are less strong than the middle time frames, and traders only use them to trade breakouts.
A trader can trade breakouts that are both against and with the trend, or breakouts that are below or above ranges.
After the price breaks through the S&R level of the lower time frame, it can be used for a reversal setup if the larger analysis has confirmed that a larger reversal is likely to occur.
Conclusion:
This is what you’ve learned in this article…
* Support and resistance levels have different values in different situations.
* You have to do what it takes to know the most valuable zones when using these two zones.
* The S&R levels give a clear picture of the interaction between demand and supply in the market.
* The resistance represents the level at which the sellers join the market and become more aggressive, trying to push the price of the forex pair lower.
* The support on the other hand is formed when buyers join the market and become more aggressive, pushing the price of the forex pair higher.
* The two levels are very important to traders, hence, you must learn how to identify them on price charts.
* There are different tools that you can use to identify the S&R levels.
* It’s recommended that you test different tools and choose the ones that work well for your trading psychology and strategy.
* The S&R levels should be applied with different strategic goals on three different time frames namely highest, middle, and lowest time frame charts.