Support and resistance levels
Definition
Support is a price where a fall has already stopped and turned up: buyers are stronger than sellers there. Resistance is the mirror price where a rise has turned down. A level is not a thin line but a zone: the more bounces it has seen and the higher the timeframe, the stronger the reaction on the next touch. After a breakout the roles flip: broken resistance becomes support.
How levels work
Price does not move in a straight line: in some places large buy orders stop it, in others sell orders. If a fall has stopped at the same price several times and turned up, that is support, the market's floor. If a rise has turned down at the same price several times, that is resistance, the ceiling. Between them price moves sideways in a range, and in a trend levels line up like a staircase.
Levels are drawn from visible points on the chart: local highs and lows, the edges of a range, round prices such as 1.0800, the previous day's high and low. Marking starts on a higher timeframe, M15 or M30, and only then do you switch to the one-minute chart for the entry.
| Sign | Strong level | Weak level |
|---|---|---|
| Touches | two or three bounces from one zone | a single touch |
| Timeframe | visible on M15 and above | only noticeable on M1 |
| Reaction | a large candle off the level, a long wick | a sluggish touch, price hovers at the zone |
| Freshness | recent touches | the last touch was long ago, many breakouts since |
| History | broken resistance held as support | the level has been broken both ways several times |
After a real breakout the level's roles flip: former resistance becomes support, former support becomes resistance. Price returning to such a zone is called a retest, and it is one of the calmest entry points.
How to trade levels in binary options
Two scenarios are traded from a level: the bounce and the breakout. Both are decided on a closed candle, because a trade cannot be closed early and an entry in the middle of a candle turns into guessing.
- Bounce. Price has reached the zone, the candle touched it with its wick and closed back inside. Enter at the open of the next candle away from the level: up from support, down from resistance. Expiry one or two candles. The signal is stronger if an oscillator is in its overbought or oversold zone at that moment.
- Breakout. The candle closed with its body beyond the level and the next one did not come back. Enter in the direction of the breakout or on the retest. How to tell it apart from a poke beyond the level with a return is covered in the article on breakout and false breakout.
Two rules filter out most losses. Do not trade a bounce against a strong trend on the higher timeframe: levels get broken more often there. And if the level a trade was opened from has been broken, the scenario on that asset is over and no second trade is taken from it.
In the terminal
In BinoView Supercharts you do not have to draw levels yourself. The Average Support Resistance indicator builds them automatically and colors them by history: red is resistance, green is support, blue means price has already bounced from the level, grey means the level is broken or outdated. How to trade these colors by hand is shown in the manual levels strategy and in the levels + CCI one-minute setup, and levels with the DeMarker oscillator on OTC and Forex in the levels + DeMarker strategy. The S/R Signals Merged indicator glues nearby levels into one zone, see the bounce strategy on the real market. Sloped support and resistance is drawn by Tilted S/R Pivots, and the bots Adaptive S/R Zones and SR Bot Original trade from zones automatically.
How it differs from a dynamic level and an order block
A horizontal level stays put and holds until it is broken. A dynamic level moves with price: a moving average, for example, that price pulls back to in a trend. An order block is also a reaction zone, but it is built differently: from a single candle before an impulse rather than from several bounces, and it works best on the first return, whereas an ordinary level gains weight with every touch.
Frequently asked questions
How many touches does a level need to count?
Usually two or three bounces from the same zone. After the second touch the level is visible, after the third almost every participant sees it, and the reaction there is the most predictable. But every touch has a cost: the orders in the zone get used up, and a fifth or sixth touch ends in a breakout more often than in a bounce.
Do levels work on OTC?
Yes, and they are built the same way: from the highs and lows where price has already turned. In the strategy breakdowns automatic levels are used both on OTC and on real currency pairs. The difference is that OTC has no news and no session closes, so levels more often play out as bounces, while sharp moves can happen without any outside trigger.
Why is a level a zone rather than a line?
Because price almost never turns from exactly the same tick: one touch lands on the wick, another on the body, a third falls a couple of pips short. If you wait for a touch "to the pip", you skip half the trades, and a wick poking a couple of pips past the line is mistaken for a breakout. That is why level indicators draw bands, not lines.