"One man's ceiling is another man's floor." (Bob Dylan)
A support level is established when a tradable stops declining. A resistance level is likewise set when a rally stops rising.
A look at market movement tells us that price fluctuates between a level of support and a level of resistance. Properly identifying key support and resistance levels can improve your ability to enter, exit, and manage your trades. So, how can we determine which support and resistance levels are the most important? One way is to follow the traditional method of plotting the pivot point, and its associated resistance and support levels. There is a standard way of making these calculations, which we have already discussed.
As you might expect, there are other approaches to identifying support and resistance levels for a tradable, but a great number of them are unreliable. These approaches include, but are not limited to, methodologies that utilize Fibonacci numbers and ratios, Gann concepts, moving averages, and trend lines. Those techniques all have a very static view of the tradable. They assume that the market will repeat past behaviour and experience, and can therefore be viewed linearly. They also use fixed intervals for inputs, which creates yet another dilemma. The old maxim: "A study of the past does not tell you anything about the future." The exception here is our interest in last week's resistance and support levels and those of the last trading session.
A tradable is not a static phenomenon. It will not disregard changes related to news and economic and industrial macro forces that influence price movements. A tradable is a complex and dynamic phenomenon, but it is clear that price fluctuates between levels of support and resistance. One way we can identify these levels in advance is through the use of pivot/resistance/support points previously mentioned.
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