Support and Resistance Zones

Drawing key levels differently

Support and resistance.

Ah, the cornerstone of many trading playbooks.

Buy at support and sell at resistance for mean reversion
Buy through resistance, and sell short through support for breakouts

Simple yet effective concepts when executed well.

But, there’s always been a problem with support and resistance.

Where do you draw the lines?

And where you draw them matters because if price is 1 pip under the line it’s perceived differently than 1 pip over.

What do I mean?

Look at this 5-minute chart of NAS.

I think we can all agree there’s resistance at 18087.

Price touched it multiple times, banging its head on the resistance ceiling.

Ok, and now let’s say we are day-trading this price action.

We’re on a 1 minute chart and we see a breakout candle forming in the last 15 minutes.

Off to the races right? Load the boat baby, this is a lay-up breakout long.

Ah – not so fast. Price whipped back and you’d have had to chalk that one up as a loss.

Damn! It looked so good.

But what if you had a different approach?

What if instead of drawing a line guessing where the resistance should be, you drew a box?

And that box was 1 ATR wide (so, on a 5 min chart here, it’s $12.)

That box represents your ZONE of resistance.

Not a precise price point, but rather a zone where sellers have stepped in many times before.

So it would look like this:

Now when price is doing its thing up near your zone, you have a natural filter.

When it’s in the zone it’s indecision, noise, chop.
When it’s clear of the zone that could indicate a true move developing.

It’s not perfect of course but it could be worth considering.

A rectangle 1 x ATR’s width at your key level.

It might just help you avoid getting sucked into false moves…