Support and resistance are amongst the most powerful components of technical analysis used in day trading. Without support and resistance, charts would be more challenging to read.
Learning about support and resistance helps traders identify the trends and execute trades with confidence.
Keep reading to uncover how to find support and resistance in day trading.
Table of Contents
Support and Resistance Basics
In price action, support means the price has found a value where there are buyers. Support will be at the lowest point on the chart, and you can find them in any time frame.
Resistance is the highest point on the chart that sellers favor before sell-offs.
In technical analysis, support can become resistance, and vice versa.
For example, if gold found resistance at $1500 but later broke out to $1700, the new support is $1500. This reason is why traders wait for pullbacks, where the price will most likely retest and continue the upward trend.
Reversals also occur within support and resistance. For example, if a stock was trending downwards for the last year and broke out of its most recent resistance, it continues to create higher highs and higher lows, which is a trend reversal.
What is Market Structure?
Market structure is the most critical aspect of technical analysis needed to identify support and resistance.
The market structure will tell you the trend of a market.
Because it’s hard to predict the future, you can use past price action to see support and resistance.
There are higher highs, higher lows, lower highs, and lower lows within the market structure.
In an upward trending market, higher highs are called resistance, while higher lows are called support. In a downwards market, the trend uses lower lows as support and lower highs as resistance.
If the stock price of Tesla is $400 and breaks through to $500, it means the price broke through its resistance, ultimately forming support. Most traders will look for a pullback into $400 to buy and then begin riding the wave to $500 or beyond.
The Fibonacci tool measures market structure on any time frame, including how fast the pullback may respond. The golden ratio, 61.8%, is the most desired Fibonacci level, although 50% and 38.2% are also possible.
The lower pullback, the longer the price will take to form a new high or new low. In other words, a new resistance or new support.
How to Use Support and Resistance
Once you’ve identified support and resistance on your chart, it becomes a critical component of your execution strategy.
Let’s say the market structure on Facebook stock is in an uptrend. After news of abysmal earnings on its quarterly reports, the price breaks its previous support of $120, signaling a reversal. After the next day, the price stays around $100. The following day the price continues to consolidate and finishes the day with a bullish candle.
At this point, it looks like Facebook has found support at $100. Since it’s important to buy low and sell high, a disciplined trader would wait for the price to get to $120, or at least close before price action signals sellers have found resistance.
If the price was $120 and broke out to $150, it is expected to wait for a pullback to $120. After, a new high, or resistance, will be created to continue the uptrend.
Platforms to Find Support and Resistance
On most trading platforms, you will be able to use Japanese candlesticks and view the highs and lows of price action.
Tradingview and MetaTrader 4 are the most popular platforms to draw and identify lines for support and resistance.
You can also use trendlines, which are also a form of support and resistance.
Indicators to Help Find Support and Resistance
Support and resistance are more than lines on market structure, as it can be shown using indicators.
Moving averages show the trend while the price stays over or under the indicator, becoming an extra confirmation if you wanted to buy or sell. When the price is under the moving average, that is the resistance. When the price is over the moving average, it’s the supported price.
RSI and its divergence show whether the price is overbought or oversold. Overbought means it has approached resistance with sellers looking to come in and sell high. Oversold means the price is looking for support.
Supply and Demand
Many people use support and resistance interchangeably with supply and demand.
The main difference is that supply and demand use zones, while support and resistance tend to be price lines.
Also, supply and demand zones use the wicks and candlestick bodies where buyers and sellers historically bought or sold. Supply zones are buyers, while demand zones are sellers.
Both use market structure as a form of finding the highest and lowest points on the chart.
Some traders use both zones and lines to identify areas to execute trades.
Using Indicators with Support and Resistance
Many day traders use multiple tools for extra confirmation of support and resistance besides price lines.
For instance, if you are trading silver and the support is $20, but the price breaks through to $18, you can use an RSI or moving averages to execute a trade on the pullback.
Do You Need Support and Resistance to Be a Successful Day Trader?
Support and resistance are critical components of technical analysis, which is widely used for day traders. Without support and resistance, you can’t properly read the chart and know which areas to find potential trades.
Simply put, you must learn support and resistance to become a successful day trader.
Final Thoughts
Now that you know how to find support and resistance in day trading, the next step is to study on the charts.
Practice finding support and resistance by reading the market structure. You can also use supply and demand zones to help you find support and resistance.
Having two or three confirmations gives you more confidence to execute trades, including indicators such as RSI or moving averages.