Support and Resistance Levels

• Support level — a price zone where buying demand is traditionally strong enough to stop or slow a price decline. The price tends to “bounce” upward from this level, gaining support.

• Resistance level — a price point where an asset rises to but then reverses downward. The price climbs and “hits” this level, unable to break through. Many sellers appear at this point (taking profit, opening shorts), and the price pulls back.
  Example: Bitcoin attempts to break through 95,000 USDT several times but gets rejected each time — this means 95,000 USDT becomes a resistance level.
  Important: A broken resistance line often becomes a new support line.

How to Identify Key Levels

Use the following proven criteria to accurately identify significant levels:

• Historical highs and lows: look for points where the price previously reversed — former highs become resistance, lows become support.

• Multiple touches: the more times the price bounces from a level, the stronger and more significant it becomes to market participants.

• Round numbers: psychologically important levels (e.g., $100,000 for Bitcoin, $2,000 for Ethereum) often act as support or resistance.

• Timeframes: levels from higher timeframes (daily, weekly) are stronger than those from lower timeframes (hourly, minute-based) and serve as long-term reference points.
  However, for scalping (1–5 minute trades), higher timeframe levels often have no practical value — scalpers make decisions based solely on minute and second charts, ignoring daily and weekly levels. The shorter your trading horizon, the less influence higher timeframes have on the current trade.

The Psychology of Levels and Breakouts

Levels work due to the collective psychology of traders. At support, participants expect a bounce and place buy orders, creating additional demand. At resistance, many take profits or open short positions, increasing selling pressure.

• A breakout occurs when one side (buyers or sellers) gains a decisive advantage. After a breakout, the previous support often becomes resistance, and vice versa. This is called a role reversal.

• A false breakout is a brief move beyond a level followed by a quick return. It is often used by large players to “hunt” stop-losses of smaller traders.

Practical Trading Applications

• Range trading: buy near support aiming for a bounce toward resistance; sell near resistance aiming for a move down to support. Stop-loss is placed beyond the broken level.

• Breakout trading: enter a position upon a confirmed breakout in the direction of the move. The target is the next significant level; the stop is placed beyond the breakout level in case of a false breakout. Breakout trading: enter a position upon a confirmed breakout in the direction of the move. The target is the next significant level; the stop is placed beyond the breakout level in case of a false breakout.

• Zones instead of lines: experienced traders view levels not as precise lines, but as price zones roughly 1–3% wide. This reduces the number of false signals.

• Volume confirmation: strong levels are usually confirmed by increased trading volume upon touch or breakout.

How to Choose a Strategy for Working with Support and Resistance Levels

The choice depends on market conditions and trading style.

In a sideways (range-bound) market, the price fluctuates between a support level and a resistance level without forming a sustained trend. In such conditions, it's more effective to look for buy opportunities near support and sell opportunities near resistance, expecting the price to bounce within the range.

In a trending market, the price consistently makes new highs or lows. In this case, entering on breakouts in the direction of the main trend is considered more reliable — when the price moves beyond previous boundaries and continues further.

Beginners are recommended to start with bounce trades from strong levels, as these setups are easier to identify visually and require less experience in assessing trend strength.

Checklist for Trading with Support and Resistance Levels

1. Identify historical highs and lows on the chart from the last few months

2. Mark levels the price has touched 2–3 times or more

3. Pay attention to round numbers and psychologically important levels

4. Check how these levels perform on higher timeframes

5. Determine the current market type (trend or range)

6. Choose an appropriate strategy: bounce or breakout

7. Place a stop-loss just beyond the broken level with a small buffer

8. Monitor volume when the price approaches key levels.

Common Mistakes When Trading with Levels

Many traders — especially beginners — face similar issues when drawing and using levels. Here are the most common ones:

1. Placing levels through random points without historical significance

2. Expecting exact touches of the line instead of working with price zones

3. Ignoring volume when assessing the strength of a level

4. Placing stop-losses too close to levels

5. Trading against a strong trend relying only on levels

6. Using too many levels at once, which creates confusion

7. Ignoring role reversal after a breakout.

Mastering the use of support and resistance levels is the foundation of successful trading. They help identify optimal entry and exit points, correctly place stop-losses, and plan profit targets. Start by studying key levels on higher timeframes and gradually develop your ability to apply them in various market conditions.