What Are Support and Resistance?
Support and resistance are price levels where the market has historically shown buying or selling pressure. They are the backbone of technical analysis and the basis for most trading setups.
Support is a price level where the market has found buyers in the past. Resistance is the opposite: a level where sellers have appeared.
How to Find Them
Horizontal levels with 2-3+ historical touches are most reliable. Draw zones, not exact lines (10-20 pips for forex, 50-100 points for indices). Round numbers act as natural S/R due to order clustering. Previous week/month highs and lows are key institutional levels. The 200-day moving average is the most important dynamic S/R indicator.
Support/Resistance + Sentiment: The Powerful Combination
S/R shows WHERE the market could turn. Sentiment shows WHO is on which side. Together, they provide a more complete picture than either method alone.
Setup 1: Contrarian Bounce at Support
Price reaches strong support + over 68% of retail traders are short = Contrarian long. The crowd is shorting into support, which historically rarely works.
Setup 2: Contrarian Rejection at Resistance
Price reaches strong resistance + over 75% are long = Contrarian short. The crowd is buying into resistance.
Setup 3: Breakout Confirmation
Price breaks through resistance + the crowd is positioned against the breakout (65%+ short) = The breakout has "fuel" from a potential short squeeze.
When S/R Fails
During high-impact events (FOMC, NFP, geopolitical shocks), all technical levels can break. News-driven markets seek new equilibriums with no historical reference. Weak levels (only one touch) are unreliable.
Daily Workflow
Mark 2-3 key S/R zones on the daily chart. Check Sentmo for positioning and 24h change. Create a watchlist of instruments near key levels with extreme positioning. When price reaches your level, re-check sentiment before entering.