In trading, having the right tools and setups on your charts is important. But there is one thing that so many traders don’t take into consideration, yet it’s what makes or breaks them. What I’m going to share with you now is non-negotiable for anyone serious about trading profitably. If you don’t implement this on your charts, you will likely lose money.
Most traders are guilty of having a default grid line set up within their trading platform. These are just equidistant horizontal and vertical grid lines plopped on the chart and carry no real informative value within them. While these can be important for some forms of calculation, they end up merely clutter when viewing price action. In trading, your charts should only include what adds value to your decision-making process. This is the reason why it is very important to take out the extra grid lines that do not add value to your trade.
The Setup of Your Charts for Success
Once you’ve gotten rid of those default grid lines, it’s time to draw a grid that actually means something: support and resistance levels. Here is where we separate the noobs from the pros. The number one type of support and resistance you should be drawing are major previous swing highs and lows.
And when I say “major,” I mean levels that stand out clearly on your chart, even to the untrained eye. These are the levels that traders collectively respond to because they represent significant price points where decisions have been made in the past.
Key Levels of Resistance and Support Identification
Support and resistance levels are not just arbitrary lines you draw on your chart; they are zones where price has reacted historically. The key is to look at levels that are visible and significant to most traders, because those are the levels that will matter most when price returns to them.
Draw a horizontal line whenever there is a major swing high on the left side of your chart at that particular price level. That now becomes a potential resistance when price revisits it. The opposite would apply to major swing lows for support levels. Once the price comes back to such areas, market participants usually react to prior experiences shown by either buying or selling pressure.
Pro Tip: Keep in mind that all support and resistance is an area, not a pinpoint. For this reason, do not worry too much about trying to draw a perfect line. The market does not care about what the exact pixel is on your screen; it moves within a range. Think of these levels as broad zones that represent where price has turned in the past, not as rigid lines.
The Secret Sauce: Confirming Breakouts and Retests
Let’s dive deeper into when and how to use these levels effectively. Many times, traders will see price coming up to a prior major high and think that a breakout is going to happen. But the key is to wait for confirmation. When price revisits a previous high, watch how it behaves.
Similarly, if price only “pierces” the level and then retreats back either completely or partially, the signal is considered temporary; this is what we also call a “pierce,” different, of course, from just above. If the price really slams through the level—which means it has intense momentum—then a true breakout condition, if our strategy calls for this one, is triggered or met.
Once the breakout has occurred, always look out for a retest of the broken level.
Example: If price breaks higher through a major resistance level, watch to see if it then comes back to that level to test it as support. If it holds, then this is your entry signal. If not, stand cautious. Retests give you a safer entry because they confirm that the new level of support or resistance is holding.
The Importance of Time in Trading
To really take your strategy to the next level, you have to add time analysis to your decision-making. Most traders focus on the price axis—the Y-axis—but completely ignore the time axis, the X-axis. The market is a two-dimensional environment: price and time. If you’re not factoring time into your analysis, you’re missing half the picture.
There are quite a few ways to understand this—concept of convergence, for example, or time and price coming into alignment. It is another trading strategy of the legendary trader WD Gann. Every time a price level merges with timing, a situation with a great probability of taking home an excellent profit opens up for consideration.
Bonus Tip: To help with this, I highly recommend you use a timing indicator. For more information on this, go to indicatorwebinar.com. It’s a free resource, and you’ll get an educational video that comes with it to walk you through on how to use it effectively.
Conclusion
Support-resistance trading doesn’t just involve drawing lines on your chart but finding out the psychology of the market and timing the entries. The major swing highs, the major lows that stand out to you, should be kept in mind as levels or more correctly, zones, and a little addition of timing can also do the job of better confirmation for any trade. Trading is about probabilities, not certainties. You increase the odds of this occurring by what you add into your trading strategy here with the insight you have read. The more practice, the better you become at gauging how support and resistance levels can help make wiser decisions in trading.
