Support and Resistance Indicators
Support and resistance indicators in trading evaluate the performance and outcomes of trading strategies by identifying key price levels where markets may reverse or consolidate. Here are some of the most commonly used support and resistance indicators:
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- Trendlines: Drawn lines connecting price highs or lows to highlight support or resistance zones and trend direction.
- Pivot Points: Calculated levels based on previous price action, identifying potential support and resistance for the current period.
- Fibonacci Retracement: Uses Fibonacci ratios to mark potential support and resistance levels after a price move.
- Trend Based Fib Extension: Extends Fibonacci levels beyond the initial move to project future support or resistance in a trending market.
Frequently Asked Questions
Quick answers based on this page's topic.
Tools like Pivot Points and Fibonacci retracements use mathematical formulas to project objective levels where price is likely to react. This removes the guesswork and subjectivity often involved in manually drawing lines, providing consistent levels used by institutional traders.
These levels represent areas of significant supply and demand. Because many market participants place their buy and sell orders at these psychological 'round numbers' or technical milestones, they create a self-fulfilling prophecy where price consistently stalls or reverses.
Yes, this is known as 'role reversal.' Once a significant resistance level is broken, it often becomes new support as previous sellers look to buy the retest. Identifying these flips is a core strategy for breakout traders looking for high-probability entries.