Technical Analysis

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Support and Resistance

It does not matter what exchange instruments you intend to trade in the future (OR which instruments you are currently trading), it does not matter if you are an adherent of any market theory, sooner or later you will need to get acquainted with the concept of power level.

What is the power level? By force levels, it is customary to mean values in the vicinity of which price consolidation occurs. If we accept the concept of directed market evolution, then such a definition becomes justified. Moreover, the longer the price is in the vicinity of the power level, the more significant it is considered. If the price repeatedly approached the power level from above, then it is customary to call it support, otherwise (multiple approaches from below) resistance.

Among other things, it must be pointed out that there are two types of power levels:

Horizontal power level

Inclined power level

As can be seen from the graphs, the power level can be both support and resistance (depending on the situation). Moreover, after breaking through the power level, the price, as a rule, returns to it after a while. The higher the power level, the greater the likelihood of an early future return to the breakdown line. It is especially worth pointing out that many traders build their trading systems precisely on similar situations.

In conclusion, it should be noted that there is no specific rule for constructing power levels for various markets (and this is not surprising). In practice, most traders spend these levels “by eye”, and by and large, it all depends on how a particular trader sees the situation at the moment. In other words, the construction of power levels is in some way an act of creativity. At the same time, one should not forget about the psychological side of the issue, biased attitude to the market is a direct road to ruin.

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