You've probably heard words like support and resistance often. In English – support/resistance or abbreviated S/R
Support is the level/levels at/from which the price turned around and went up.
You have heard that the asset has strong support, for example at $100. This means that there is a high probability that the price, falling down, will stop at $100 and will rise from this level.
Resistance is the opposite: this is the price level to which the price will reach and may stop at it and will fall from there.
I have the GOLDEN RULES of technical analysis.
Remember the first one:
What used to be support sooner or later becomes resistance.
What used to be resistance, sooner or later ALWAYS becomes support.
Second rule:
The older the timeframe, the stronger the support and resistance
Third rule:
The more often an asset hits resistance or support, the higher the likelihood that it will be broken.
Most indicators are based on support and resistance. You will see how current resistance or support may have been resistance or support for the asset in the past.
How to build support and resistance lines?
Support and resistance lines are drawn along the shadows of the candles. To build, you need at least two points through which support or resistance will pass.
At the same time, on the chart you can often see with the naked eye the levels to which the price reacts.
Above you see the AMD chart, it is easy to notice the levels to which the price reacted.
Now let's draw support and resistance levels.
The orange line is the first obvious level, around 59.10.
With red arrows I indicated how the price bounced from this level; there was resistance here, which at some point was broken. If you pay attention to the green arrow at the level of 59.10 at the very end of the chart, then here this line has already become support.
Next, we draw the next obvious level (blue line), it corresponds to the price of 73.75. I showed with green arrows how there was a reaction to this price at this level.
The next obvious level is indicated by the red line, it passes at the price of 99.38. I indicated the price reaction with red arrows and it was resistance, then at some point this level became support, I indicated this with green arrows.
I am 200% sure that in the future the price will react to these levels in the same way.
Now remember what I wrote above:
What used to be support sooner or later becomes resistance. What used to be resistance sooner or later becomes support - ALWAYS.
How to build PS (support-resistance) for different purposes?
Let's look at three types of investors: short-term (up to a week), medium-term (up to three months) and long-term (up to six months).
Accordingly, for each type of investor we will have a different working TF:
Short term 10-30 minutes
Medium term 1-4 hours
Long term Day-Week
To be continued...