58
THE CANDLESTICK TRADING BIBLE
Support and Resistance levels
Support and resistance are proven areas where buyers and sellers find
some of
equilibrium, they are major turning points in the market.
Support and resistance levels are formed when price reverses and
change
direction, and price will often respect these support and
resistance levels, in other words, they tend to contain price movement
until of course price breaks through them.
In
trending markets, support and resistance are formed from swing
points. in an uptrend the previous swing point acts as a support level,
and in a downtrend the old swing point acts as a resistance level.
See the example
below to learn more
59
THE CANDLESTICK TRADING BIBLE
The illustration above shows how the previous swing point acts as a
support level after the breakout.
When the market makes the retracement
move it respects the
previous swing point (support level) which will represent the beginning
of another impulsive move.
As you can see, when the market tests
the previous swing point
(support level) it goes up again.
By drawing a support level in an uptrend market, we can predict when
the next impulsive move will take place.
Let’s see another example of a downtrend market.
The illustration above shows us how the market respects resistance
levels, when price approach
the previous swing point, (resistance
level).
