Finding levels

If you only ever learn one thing to put on a chart, make it this. A level is a price that price itself keeps reacting to.

A price with a memory

Support is a price where buyers keep showing up, so declines slow down and turn there. Resistance is a price where sellers keep showing up, so advances stall there. Nothing mystical is happening. Traders remember what happened at that number, orders sit there, and the reaction repeats because enough people are watching the same line.

How to find them

• Look for repeat reactions. A price the stock has turned at more than twice is worth marking. Once is a coincidence.
• Start on the higher timeframes. Daily and weekly levels carry more weight than intraday ones, because more traders can see them.
• Use the wicks. Clusters of wicks at a similar price show you where reactions actually happened.
• Watch the round numbers. Whole and half figures attract orders for no better reason than that people think in round numbers, and it works anyway.

Levels are zones, not lines

A level rarely holds to the cent. Price will poke through, wick past it, and recover. Treat a level as a small band rather than a precise line, and expect to be wrong about the exact number more often than you are wrong about the area.

Support becomes resistance

When a support level finally breaks, it often turns into resistance on the way back up, and the reverse is true too. That flip is one of the most reliable behaviours on a chart, and you can see it in the figure above where price breaks down through the level and then fails right underneath it.

Where this stops being enough

Drawing levels is the easy half. Any two traders will mark the same chart similarly. The difference is knowing which of those levels is worth risking money at, how hard a reaction has to be before it counts, what has to line up alongside it, and what you do when price gets there. That is the method rather than the mechanics, and it is what the Playbook and the live room are for.