🐺Make These Concepts Your Ally

Hey there! My name is Nate and I write about trading for the WOLF Financial newsletter. If you are looking for more trading tips and tricks, I guarantee you’ll enjoy my content on 𝕏, @tradernatehere. Thanks for reading!

This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.

The majority of my time spent studying charts is focused on identifying and marking out support and resistance levels.

These key price points are the most important and most utilized pieces of information on any of my charts.

Support and resistance levels are crucial for understanding market trends and making informed trading decisions.

So, what are they?

Support and resistance lines are the horizontal lines drawn on a price chart that identify levels where the price has historically had a hard time moving beyond.

Support is a price level where a downtrend is expected to pause due to a concentration of demand.

As the price drops, it hits the support line and tends to bounce back up as buyers step in and hold the line.

Where there is demand, there is support.

Resistance, on the other hand, is a price level where an uptrend is expected to pause due to a concentration of supply.

As the price rises, it hits the resistance line and typically falls back as sellers continue to unload shares, either taking profits or cutting losses.

Where there is supply, there is resistance.

The Role Reversal of Support and Resistance

One of the key concepts to understand in trading is that once a resistance level is broken, it often becomes a support level.

Similarly, when a support level is broken, it often becomes a new resistance level. This phenomenon is known as a “role reversal.”

As an example, take a look at XLE. This energy sector ETF found resistance at 93.69 in September of last year.

XLE recently broke through this resistance level and last week retested it. This time around the same price level acted as support.

It will be interesting to watch this level. If it holds, will energy make another move higher?

When the price breaks through a resistance line, often that resistance line can become a new support line. Like we see with the XLE chart above.

This happens because the breakout attracts a lot of attention and new buyers, which can push the price even higher.

Conversely, when the price breaks through a support line, that support line can become a new resistance line.

This is because the breakdown can trigger a lot of selling, which can push the price even lower.

Support and resistance lines are fundamental tools in technical analysis. They provide valuable insights into market trends and can help you make more informed trading decisions.

Always remember that no tool is foolproof. Use support and resistance levels in conjunction with other indicators and strategies to increase your chances of success.

But again, identifying these levels is where I focus most of my energy when reviewing charts.

Have a great week of trading ahead!

-Nate

 @tradernatehere