We talk a lot about support and resistance in these articles and video breakdowns, but what are they exactly? Today, we are going to go into what they both are and some of my tricks for finding the most meaningful support and resistance levels. The best part, once you learn what they are and how to find them, you can take that with you for any stock you are analyzing for a potential trade.

• Support
  • Think of support as your floor. If you were to bounce a ball off the floor, the ball is likely to bounce back. However, if you were to throw the ball hard enough at the floor, you are liable to break through. Support is a specific level at a certain price on the stock.
  • Support is also referred to as demand, it is what prevents a stock from falling. In a real demand zone, buyers do not let the price drop through this area. However, if buyers are overwhelmed by sellers, the stock can break through this level and fall rapidly. Demand is usually a zone or area, not a level like support.
• Resistance
  • Resistance is the ceiling.
  • Resistance, also known as supply, is the level (or area when talking about supply) that provides resistance to the stock’s price from going any higher. Sellers step in at these levels or areas and prevent the price from rising any higher. Once buyers muster enough strength to overwhelm sellers, the price move to the upside can be drastic.

How to Identify Support and Resistance

As I say in the video below, there are any number of support and resistance levels on a stock at any given time, so how do you find the most meaningful levels and areas? Well, you start from the higher timeframes, the weekly or daily timeframes, then you work your way down to the smaller ones, one hour and the 15 minute.

This method is extremely important as many times, bigger timeframes reveal important, more explosive levels. The more times a stock’s price touches support/resistance, the more explosive a potential move becomes. This indicates pressure is building up to break through that level. Expect a drastic move when it finally does.

Support and Resistance Example: Roblox (RBLX)

As you can see on my chart in the video, there are any number of support and resistance levels on a stock at any given time, the trick is finding the most meaningful ones for where price is currently. In our Roblox (RBLX) example, we are using the daily timeframe to look for our meaningful levels and we find one, based on the price action of the last few weeks, at around the 42 mark.

We can see the resistance to the upside pretty clearly as price tried several times to break through this level, but failing each time. However, like we said, the more times this level is tested, the weaker it becomes where one good push to the upside could not only break through this level, but send the stock surging higher.

When in doubt, zoom out. That is what I tell my students. There will be too many false levels and zones if you look for major levels on the smaller timeframes. Why it helps to look for these levels and zones on the higher timeframes is because of the larger aggregation of time in each candle.

This gives you a summary of where the stock found support or resistance over a longer period of time, making spotting these levels easier. For our trade idea below, you can watch the market to see if it carries RBLX higher, bursting through this level to the upside. Keep this trade and these support and resistance insights handy the next time you are looking for a big trade.

Learn to find these levels for yourself when you join The Profit Machine. There, you’ll learn all about my favorite stocks, setups, strategies, and plenty more. You’ll also be invited to weekly webinars where I answer questions and go over important trading lessons, like the one in today’s article. The best part, you’ll also receive live trade alerts. Not only will you get a world-class education, but you’ll earn while you learn.