How to Determine the Strength of Support and Resistance
Support and resistance are critical when trading. When price reaches support or resistance, it will either break through or retrace. The odds of whether price will break through or retrace depends on the strength of the support or resistance. So, knowing the strength of support and resistance will give you a distinct trading advantage.
There are several factors that go into determining the strength of support and resistance:
1) How Many Times the Support or Resistance Line was Touched. Put another way, how many times the support and resistance line was tested and failed. The more times a support/resistance line was touched, the more likely price will retrace (not break through).
2) The First Time the Support or Resistance Line was Touched. It’s important to know when the support/resistance was created. Generally, the longer ago it was created, the more weight it has (price is more likely to retrace).
3) The Last Time the Support or Resistance Line was Touched. A wide span from the first time touched to the last time touched could indicate even greater support/resistance, especially if the last time touched was recent.
4) Whether the line is a session high or low, overnight high or low or a previous session high or low. Any such high or low tends to add weight to support and resistance.
Let’s use the chart below to illustrate. Click the picture to enlarge it.
This 6E chart from today is running the Dynamic Targets indicator, which tells you all the key information described above. At 8:40:02 PDT a Session Low of 1.0821 was created (pink dashed line), was touched 4 times, the last time being at 9:03:26 PDT. These factors (mainly a Session Low touched 4 times) indicate relatively strong support, and consequently price retraced upward to 1.0844, one tick from the previous resistance line of 1.0845. As you can see, not only does the Dynamic Target indicator tell you the relative strength of support and resistance, the lines become targets as well.
Knowledge of the strength of support and resistance could significantly improve your trading results. It’s something you definitely want to add to your trading arsenal.