Lesson 2 of 633% Complete

Support & Resistance — Basic Levels 🧱

Beginner12 min2025

Price doesn't move randomly. It bounces between invisible walls called Support and Resistance. While beginners chase price wherever it goes, professionals mark the levels where price has reversed before and wait patiently for price to return. These psychological barriers are where the big money trades—and where you should too.

Welcome to Lesson 5

You've mastered price action. But here's the reality check:

Knowing HOW to read price means nothing if you don't know WHERE the critical levels are.

The Professional Difference: Retail traders take signals wherever they appear. Professional traders only trade signals at key Support and Resistance levels where the probability of reversal is highest. They mark their charts meticulously, identifying every major S/R zone before the week begins.

Lesson Chapters

1Chapter 1: Support and Resistance Defined

Support and Resistance (S&R) levels are price zones where trading activity has historically caused the market to reverse direction.

The Fundamental Concept

Think of price as a ball bouncing inside a room:

Support = The Floor: Price bounces UP when it hits this level

Resistance = The Ceiling: Price bounces DOWN when it hits this level

Between S&R: Price oscillates, searching for the next barrier

The Psychology Behind S&R

Support (Demand Zone):

  • Demand (buying interest) overcomes supply
  • Traders remember: "Price reversed here last time"
  • Institutions place buy orders at proven levels
  • Self-fulfilling prophecy: Everyone buys = price bounces

Resistance (Supply Zone):

  • Supply (selling interest) overcomes demand
  • Traders remember: "Price got rejected here last time"
  • Previous buyers want to "break even"
  • Self-fulfilling prophecy: Everyone sells = price reverses

Critical Distinction: Zones, Not Lines

Important: S&R are zones (areas), not single precise lines.

Why?

  • Stop hunts penetrate exact levels by 5-15 pips
  • Institutional orders layered across a range
  • Market is not exact (bid-ask spread, slippage)

Professional Practice:

  • Draw S/R as horizontal zones (5-20 pip width)
  • Mark the general area, not single line
  • Account for stop hunt potential
Pro Tip

Professional Insight: When price approaches support at 1.0800, don't expect it to bounce at exactly 1.0800. It might spike to 1.0795 (stop hunt), then reverse. Always think of S&R as zones (1.0795-1.0805) rather than exact lines.

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2Chapter 2: Identifying Support Levels

A Support Level is a price area that has historically prevented price from moving lower.

How to Identify Strong Support

Previous Swing Lows

The most basic form of support is a swing low (trough)—a point where price stopped falling and reversed upward.

Definition: A swing low is a candle with at least two higher lows on both sides.

Multiple Touches = Stronger Support:

  • 1 touch: Tentative support (watchlist)
  • 2 touches: Valid support (tradeable)
  • 3 touches: Strong support (high probability)
  • 4+ touches: Major support (institutional level)

Recency Matters:

  • Last 1-3 months: Highest priority
  • 3-6 months: Medium priority
  • 6+ months: Low priority

Support Level Example

EUR/USD Analysis:

Swing Lows:

  • June 1: 1.0800 (bounce)
  • June 15: 1.0805 (bounce)
  • June 28: 1.0795 (bounce)

Support Zone: 1.0795-1.0805 (tested 3 times in 1 month)

Trading Application:

When price approaches 1.0800 again:

Wait for confirmation:

  • Bullish engulfing candle
  • Hammer with long lower wick
  • Pin bar rejection

Entry: 1.0802 (on candle close)

Stop Loss: 1.0785 (15 pips below support zone)

Target: 1.0900 (next resistance level, 98 pips)

R:R: 1:5.8 ✓

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3Chapter 3: Identifying Resistance Levels

A Resistance Level is a price area that has historically prevented price from moving higher.

How to Identify Strong Resistance

Previous Swing Highs

The most basic form of resistance is a swing high (peak)—a point where price stopped rising and reversed downward.

Round Numbers (Psychological Levels)

Levels at round numbers carry heavy psychological weight:

Major Round Numbers:

  • 1.0000, 1.1000, 1.2000 (hundreds)
  • 150.00, 155.00, 160.00 (for JPY pairs)

Why They Matter:

  • Humans gravitate to round numbers
  • Institutional orders cluster at these levels
  • Easy to remember and reference
  • Self-fulfilling prophecies

Consolidation Length

If price consolidated beneath a resistance level for a long time before dropping, that resistance carries heavy weight.

Resistance Level Example

GBP/USD Analysis:

Swing Highs:

  • May 5: 1.2850 (rejection)
  • May 18: 1.2845 (rejection)
  • June 2: 1.2855 (rejection)
  • June 15: 1.2848 (rejection)

Resistance Zone: 1.2845-1.2855 (tested 4 times in 6 weeks)

Trading Application:

When price approaches 1.2850:

Wait for confirmation:

  • Bearish engulfing candle
  • Shooting star with long upper wick
  • Failed breakout (spike above, then reversal)

Entry: 1.2848 (short, on bearish candle close)

Stop Loss: 1.2865 (15 pips above resistance zone)

Target: 1.2750 (previous support, 98 pips)

R:R: 1:6.5 ✓

Practice Identifying Resistance Levels

Practice identifying swing highs, round number levels, and resistance zones on demo charts

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4Chapter 4: The Role Reversal Principle (S/R Flip)

The most powerful concept related to S&R is the Role Reversal Principle, often called the S/R Flip.

The Rule

Once a strong Support level is decisively broken, it often becomes new Resistance. Once strong Resistance is broken, it often becomes new Support.

The Mechanism: Support Becomes Resistance

Phase 1: Support is Established

  • Price bounces off 1.1000 multiple times
  • 1.1000 = Strong support

Phase 2: Support Breaks

  • Price breaks below 1.1000 with strong bearish candle
  • Closes at 1.0975 (decisive break)

Phase 3: The Retest

  • Price rallies back up to 1.1000
  • Previous bulls want to "break even" (sell)
  • Massive sell orders cluster at 1.1000

Phase 4: The Flip Confirmed

  • Price rejects 1.1000 from below
  • Bearish candle forms
  • Old support is now new resistance ✓

Trading Opportunity: High-probability short entry at 1.1000 retest

The Mechanism: Resistance Becomes Support

Phase 1: Resistance is Established

  • Price rejects from 1.0900 multiple times

Phase 2: Resistance Breaks

  • Price breaks above 1.0900 with strong bullish candle
  • Closes at 1.0925 (decisive break)

Phase 3: The Retest

  • Price pulls back down to 1.0900
  • Previous bears are out (no more sellers)
  • New bulls see this as support

Phase 4: The Flip Confirmed

  • Price bounces off 1.0900 from above
  • Bullish candle forms
  • Old resistance is now new support ✓

Professional S/R Flip Trading Example

Setup: EUR/USD breaks resistance

History:

  • Resistance at 1.0850 (tested 4 times)
  • May 20: Price breaks above, closes at 1.0875

The Retest (May 23):

  • Price pulls back to 1.0855 (retesting old resistance)
  • Bullish pin bar forms: Low 1.0848, Close 1.0857
  • Old resistance acting as new support ✓

Trade:

  • Entry: 1.0858 (long, on pin bar close)
  • Stop Loss: 1.0840 (below retest, 18 pips)
  • Target: 1.0950 (next resistance, 92 pips)
  • R:R: 1:5.1 ✓

Result: Price respects flipped level, rallies to 1.0965. Trade wins +107 pips.

Why This Works: The S/R flip is a self-fulfilling prophecy. Everyone watches the retest. When it holds, everyone buys.

Practice S/R Flip Trading

Practice identifying and trading S/R flip setups on demo charts. Learn to spot retest opportunities

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5Chapter 5: Summary, FAQs & Quiz

Summary

Support and Resistance (S&R) levels are psychological price zones that historically cause reversals:

Key Principles (0/4)

Support and Resistance Definitions
Support = The floor where buying interest prevents price from falling, Resistance = The ceiling where selling interest prevents price from rising
Level Strength Factors
Strength = Determined by number of touches (3+ = strong), Recency = Recent levels (1-3 months) more important than old levels
The Role Reversal Principle (S/R Flip)
Once a level is decisively broken, its role often reverses—old support becomes new resistance (and vice versa)
Trade Planning with S/R
Entry: At or near S/R levels after confirmation, Stop Loss: Beyond S/R levels with buffer (10-15 pips), Take Profit: At next opposing S/R level

Professional Rule: Never enter a trade without first marking your S/R levels. Trade AT levels, not between them.

Frequently Asked Questions

Q1: Should I place my stop loss exactly on the support level?

Absolutely not. Always place your SL with a buffer (10-15 pips for major pairs) beyond the level to protect against liquidity sweeps. If price closes beyond your buffered SL, the support is truly broken.

Q2: Is a level more likely to break the more times it's tested?

Two schools of thought:

Theory 1: Each touch weakens the level (dam effect)

Theory 2: Each touch strengthens the level (reinforcement)

Professional Reality: After 4-5+ touches, the level becomes a massive liquidity pool. When it does break, the breakout is usually explosive. Trade the retest after break for best results.

Q3: How do I know which timeframe's S/R levels are most important?

Higher timeframes always dominate. Priority order:

  1. Weekly: Major institutional levels
  2. Daily: Primary decision-making levels
  3. H4: Swing trading levels
  4. H1: Intraday levels
  5. M15/M5: Noise (don't rely on these)

Professional workflow: Mark S/R on Daily chart first. Add H4 levels only for precision. Ignore M15 S/R.

Quiz

A price level where supply (selling interest) is expected to overcome demand is called:

Answer:

This is called Resistance. Resistance is the ceiling where selling interest (supply) overcomes buying interest (demand), preventing price from rising further. Price typically reverses downward at resistance.

Which principle states that a broken Resistance level is likely to become a new Support level?

Answer:

This is the Role Reversal Principle (S/R Flip). Once resistance is decisively broken, that level often becomes new support when price retests it from above. This flip provides high-probability retest trading opportunities.

If EUR/USD is at 1.0950, and the previous swing low was 1.0800, where should you place your Stop Loss if you enter long at 1.0850?

Answer:

The Stop Loss should be placed safely below 1.0800 (the Support level with buffer). Place your SL 10-15 pips below at approximately 1.0785-1.0790 to account for stop hunts. If price breaks below 1.0800, your bullish idea is invalidated.

Why is S&R considered a key element of market psychology?

Answer:

S/R is psychological because it represents collective market memory of previous turning points. Traders remember 'price bounced here last time,' so they place orders there again. This collective behavior creates self-fulfilling prophecies.

The strength of a Support or Resistance level is primarily determined by:

Answer:

Strength is determined by the number of times price has tested and respected the level. One touch = tentative. Two touches = valid. Three touches = strong. Four+ touches = major institutional level.

🚀 LeTechs Insight

You now have the map to guide your trading decisions. Support and Resistance are the foundation of every profitable trade plan. Never enter a trade without first marking your key S/R levels.

Call to Action

Build Your Trading Map

Practice identifying Support and Resistance levels on a demo account. Learn to mark swing highs and lows, spot S/R flip setups, and plan trades using these psychological barriers.

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Proceed to Lesson 6: What Moves Forex Prices?

Prerequisites

Before studying this lesson, ensure you've completed:

Ready to identify key levels? Support and Resistance are the foundation of every profitable trade plan.

Ready to continue?

Mark this lesson as complete to track your progress.

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