How To Find Support And Resistance Levels In Day Trading

Photo of author

By Theo Madsen

Last Updated


Advertising Disclosure

Support and resistance levels play important roles in many day trading strategies. For example, you can use resistance levels to identify a breakout in progress. You can also trade a stock as it oscillates between support and resistance levels. These levels can also help traders plan profit targets and stop losses for trades.

It’s essential for day traders to be able to quickly identify find support and resistance levels in day trading. We’ll explain what support and resistance levels are, why they matter, and how to find them in technical charts.

What are Support and Resistance Levels?

Support and resistance levels are price levels that a stock may have a difficult time breaking through.

A support level occurs below a stock’s current price. It forms because each time the stock’s price falls to the support level, buyers step in. This keeps the price from falling further and often pushes it back above the support level.

A resistance level occurs above a stock’s current price. When the stock’s price reaches the resistance level, traders or investors sell the stock, preventing the price from rising further.

Support and resistance levels don’t last forever. When a support level is broken – meaning the price falls below the support level – that price level now becomes an area of resistance. Similarly, when a support level is broken – meaning the price rises above the resistance level – that price now becomes an area of support.

Support and resistance levels can vary widely in strength and durability. One resistance level might be touched and retreated from dozens of times over many months. Another might be touched a few times and then quickly broken through. Usually, the stronger a resistance level was before it was broken, the more durable it is as a support level after it is broken. The same is true for support levels.

Why are Support and Resistance Levels Important?

Support and resistance levels are important to traders for several reasons.

First, they are directly involved in many trading strategies and technical setups. Many trades center around a breakout above a resistance level or a breakdown below a support level. Traders use the support or resistance level (along with other technical indicators) to decide when to enter or exit their trade.

In addition, support and resistance levels can help traders gauge the potential risk and reward of a trade. If you are entering a bullish trade 3% above a support level and 7% below a resistance level, you can estimate that your trade has a like risk of 3% and a likely reward of 7%. In fact, you might use the support level as a stop loss price for your trade and the resistance level as a profit target.

How to Find Support and Resistance Levels 

There are a few ways to find support and resistance levels when looking at technical charts.

Static Prices 

The first type of support and resistance is static support and resistance. These support and resistance levels do not change as new data is introduced (unlike other levels which we will discuss next).

These static price levels can either be psychological or specific to a stock’s trading history.

Round-number prices like $100 or $150 – or $1 or $1.50 for penny stocks – often serve as support and resistance levels.

This is usually more psychological than anything else. Traders see a stock hit a price like $100 and buy or sell at that price. It helps that these prices are often visible in the y-axis of technical charts and the default chart layouts of many trading platforms include horizontal lines at these prices.

Keep in mind that static prices often make for weak support and resistance areas, but they can gain strength if these levels have been tested a few times and not been broken.

Stocks may also have static support and resistance levels that are seen by looking at the chart. These are prices that a stock has rebounded off in the past. For example, if a stock tends to bounce off the $44 price level whenever it pulls back after an uptrend, $44 may be an area of support.

Trend Lines

Whereas static support and resistance levels are horizontal lines on a chart – they always have the same price – trend lines are diagonal lines. This means that the specific prices at which support and resistance levels occur change over time. 

As an example, consider a stock that has an upward-trending price with a number of oscillations. You may be able to connect each low of the oscillating price with an upward-trending trendline. This trendline would indicate that there is a support level that rises in price with each oscillation. You could potentially use this trendline to predict the price of the next low in the stock’s oscillation.

Support Resistance - Trendline

Technical Indicators

Popular technical indicators that are plotted alongside price data can also indicate support and resistance levels. For example, many day traders use volume-weighted average price (VWAP) to identify support and resistance levels on intraday charts or moving averages to identify levels on daily charts.

Support Resistance - Vwap

These indicators are calculated from a stock’s price movements rather than drawn on a chart by traders, like trendlines are. That can make them somewhat easier to use, but keep in mind that there are many different timescales and other factors that can be used to calculate VWAP and moving averages (for example, simple vs. exponential moving averages). 

Additional Considerations

While it can be tempting to jump in and start trading around support and resistance levels, there are a few things you should keep in mind.

First, always check for support and resistance levels on multiple chart timeframes. The strongest support and resistance levels are usually those that recur over multiple timeframes.

For example, an intraday support level might not seem that significant if you’re only looking at 1-minute and 30-minute charts. But if that support level coincides with the 200-day moving average on the stock’s daily chart, it’s likely to be very strong.

Another thing to keep in mind is that support and resistance levels are not exact. A stock might have support around $100, but the price can still fall to $99.99 without “breaking” the support level.

If you trade around support and resistance levels, make sure to confirm that a breakout is real before entering a trade. In addition, if you use support and resistance levels to set stop losses, leave yourself some breathing room below the support level or above the resistance level.

Finally, keep in mind that support and resistance levels can be broken. These levels are difficult for a stock to break below or above, but they’re not guaranteed to hold. In fact, many traders’ whole strategies center on moments when support and resistance levels fail.

If you do see a stock break through its support or resistance level, don’t assume it’s a temporary hiccup. It could be a significant trend change. At the same time, many breakouts fail, so it’s important to consider other technical indicators when deciding how to react.

Conclusion: Support and Resistance In Day Trading

Support and resistance levels are important for day traders because they can form the basis of trades and help traders gauge risk and reward for their trades. Support and resistance levels often occur at round-number prices or follow trendlines that track the highs and lows of a stock’s price. They can also occur around popular technical indicators like moving averages and VWAP.

When trading around support and resistance levels, keep in mind that they can and do fail. When this happens, you need to be able to evaluate whether the breakout is sustained and should be ready to react to a trend reversal.

Photo of author

Theo Madsen

Theo has been actively trading the forex markets since 2013. Over the past five years, he has gained experience trading currencies, stocks, options, and futures. Theo's trading experience led him to test out over one hundred different trading services and he shares his insights in reviews to help other traders.

Leave a Comment