Lesson №07

You know, these support and resistance levels are the most overrated thing in technical analysis! Everyone talks about them, but few really understand their true essence.

Of course, you can determine them with all sorts of whimsical tools — trend lines, moving averages, and Fibonacci levels ( which, by the way, I consider almost magical thinking ). Some even look for “double bottoms” and “head and shoulders” — but often it's just an attempt to see patterns where there are none.

The essence is that you need to look for places where the price has changed direction several times. The more bounces there are, the stronger that level is. It's like a wall that the price hits its head against until it either bounces off or breaks through.

In trading, these levels can be used in different ways. The most basic option is to buy at support and sell at resistance. This works in sideways markets, but in trending markets, it could cost you all your money.

Another approach is to wait for breakouts. When the price breaks through resistance or falls below support, it is a signal of a possible trend change. This is when you can enter in the direction of the breakout.

But it is important to understand that these levels are not set in stone! The price can break through a level and return, creating a “false breakout” — a trick that beginners often fall for. Therefore, never rely solely on support and resistance. Use other indicators and always manage your risks.

See you in the next lesson!

Here is the previous lesson:

Support and Resistance🆘️

Lesson №06

Support and resistance are two simple yet key concepts that many traders complicate. In reality, they are just levels where the battle between buyers and sellers takes place.

Support is when greedy buyers rush to an asset, believing that it has become cheap enough. Their appetite for purchases stops the price from falling. For example, Bitcoin drops to $25,000, and immediately a crowd of buyers appears, thinking “I really got a good deal at this price!” — and the price bounces back up.

Resistance is the exact opposite. Here, sellers consider the price too high and start to take profits en masse. Imagine that the same Bitcoin has reached $30,000, and then everyone who bought at $25,000 decides: “Great, +20%, it's time to take profits!” — and the price pulls back.

Here is a simple example: a stock fluctuates between $50 and $60 for weeks. If the price drops to $55 and bounces back, then $55 is the support level. Traders see this and think: “Great price to buy, it should go up from here.”

Similarly with resistance — if the same stock then trades in the range of $60-70, and consistently falls when it reaches $65 — then $65 is resistance. Many use this as a point for selling.

I will tell you next time how to more accurately determine these levels and which strategies actually work, and which are just marketing nonsense that feeds beginners.

Support and resistance indicators often show what we can already see on the chart. Don't get carried away by overloading the chart with indicators — it creates an illusion of control but doesn't make you richer.

Dmitry: I decided to add a bit of my opinion and even a critical perspective on this topic. To talk about support and resistance as if they are some kind of magical lines is too simplistic. In reality, these are more like psychological zones where traders make similar decisions. And often these levels work only because everyone believes that they should work - a kind of self-fulfilling prophecy of the market.