Traders Need to Know: How to Use the "Support and Resistance" Tool Effectively for Entry and Exit Points

Many people start trading but miss the good entry and exit points because they don’t understand what the price chart is telling them. In fact, support and resistance are fundamental tools that, once understood, make half of the process of finding entry and exit points much easier.

Why are support and resistance important to traders?

Everyone who has been trading for a while has heard of “Support and Resistance,” but only a few truly understand it. The truth is, support and resistance are not just lines drawn on a chart for decoration; they are zones that indicate what the market might do next.

When the price approaches levels where many buy/sell orders have previously been placed, market behavior changes. Sometimes the price bounces back; other times it breaks through. These differences are determined by the power of buyers and sellers, and support and resistance help traders clearly see the balance of these forces.

What exactly are support and resistance?

To avoid misunderstanding, you must first know that support and resistance are not things that “are,” but rather things that are “perceived” in the market.

Support (Support) occurs when the price drops and a consensus forms that “it shouldn’t go down further.” Past buyers buy more, sellers who sold earlier buy back to cut losses, and new traders see it as a good buying opportunity. The result is that buying pressure accumulates and the price stops falling.

Resistance (Resistance) works the opposite way — when the price rises, people see it as “too expensive.” Old buyers sell, short sellers increase their positions, and idle traders decide to sell. The price then cannot push higher.

Key turning point: When support or resistance is broken decisively and does not return, its role changes. Old support becomes new resistance, and old resistance becomes new support.

Why do people believe in support and resistance — from both economic and psychological perspectives?

Economic Perspective

Prices fluctuate because of demand (Demand) and supply (Supply) imbalances.

• Price levels with excess supply (Excess Supply) are pushed down by selling pressure.
• Price levels with excess demand (Excess Demand) are pushed up by buying pressure.

Support occurs because, when the price reaches a certain point, buyers have enough strength to offset sellers, causing the price to stop falling.

Resistance occurs because, when the price reaches a certain point, sellers have enough strength to offset buyers, causing the price to stop rising.

Psychological Perspective

Often, prices do not move up/down because of intrinsic value but because of market sentiment. The market can be divided into three groups:

1. Early buyers — waiting for the price to rise to cut losses or take profits.
2. Early sellers — waiting for the price to fall to cut losses or take profits.
3. Idle traders — waiting for a new entry opportunity.

When the price returns to levels where many agree (such as the highest-highs or lowest-lows, or round numbers like $100), many traders make decisions simultaneously, creating a “wall” that the price cannot break through.

5 methods traders actually use to find support and resistance

1. Trendline — draw lines from key points

For trending prices, visually identifying support and resistance can be misleading. Trendlines should be drawn clearly.

In an uptrend (Up Trend):

• Draw a line through higher lows (Higher Lows) → this is support
• Draw a line through higher highs (Higher Highs) → this is resistance

In a downtrend (Down Trend):

• Draw a line through lower highs (Lower Highs) → this is resistance
• Draw a line through lower lows (Lower Lows) → this is support

The accuracy of these lines depends on how many points you connect; the more points, the stronger the line.

2. Round Numbers (Round Numbers) — Market Psychology

People tend to give special importance to round numbers ending with 0 more than they should.

• When BTC approaches $50,000 from below, there is significant resistance because everyone sees “$50k” as a critical zone.
• Moving from $99.99 to just $0.01 changes the feeling entirely.

Therefore, it’s wise to always watch support and resistance at round numbers.

$100 3. Moving Average — Average cost line

Moving Average ###MA( is calculated from the average closing prices over N days, e.g., a 50-day MA shows the average cost of traders over that period.

In an uptrend: prices tend to stay above the MA, which acts as a flexible support.

In a downtrend: prices tend to stay below the MA, which acts as a flexible resistance.

It works well when choosing meaningful MAs, such as MA 20 )about 1 month of data( or MA 200 )about 1 year(.

) 4. Fibonacci Retracement — Nature’s number sequence

Fibonacci is a sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21… each number is the sum of the two previous ones.

The key is the ratio between these numbers ###Golden Ratio(, which appears frequently in nature. Many traders believe that prices tend to reverse at these ratios:

• 23.6%, 38.2%, 50%, 61.8%, 78.6%

Example: If Bitcoin rises from $30,000 to $50,000 and then retraces, the 38.2% retracement level would be around $42,800, often acting as a support level.

) 5. Price Gaps — Gaps left behind

Price gaps ###Gap( occur when the price jumps over a range, e.g., opening today at )but yesterday closed at $100 .

• Breakaway Gap: occurs when the price breaks through support/resistance, followed by a new trend — this gap becomes a strong support/resistance.
• Runaway Gap: occurs in the middle of a trend, often retracing back but not falling below the gap.
• Exhaustion Gap: occurs at the end of a trend, often signaling a reversal.

How to use support and resistance to trade profitably

$95 Strategy 1: Range Trading ###Range Trading(

When the price is oscillating between support and resistance without a clear trend:

• Buy near support when it stabilizes
• Sell near resistance when it stabilizes

Profit comes from multiple buy/sell trades within the same range.

) Strategy 2: Trade reversals ###Reversal(

• In an uptrend: when the price hits resistance → likely to reverse down → sell at resistance not broken
• In a downtrend: when the price hits support → likely to reverse up → buy at support not broken

) Strategy 3: Breakouts ###Breakout(

When the price breaks through support/resistance with high volume:

• Role change: old resistance → new support
• Strategy: buy after the breakout and when the price retests the new support

Important: beware of false breakouts )False Breakout( — if volume is low, it might just be a fake move.

3 warnings when using support and resistance

) 1. Don’t trade against the trend

A timeless truth: “Trend is your friend”

• In an uptrend, shorting ###Short( at resistance may yield some profits, but eventually, the uptrend will break through the old resistance, creating new highs — leading to big losses.
• In a downtrend, going long )Long( at support might seem good, but prices may continue down, resulting in losses.

Tip: always check the larger trend before trading, and align your trades with it.

) 2. Avoid trading on “old” support and resistance

Support and resistance levels that have been tested many times over years are often broken.

• The longer the level has held, the more likely a new trend will form.
• More important: Always have a Stop Loss to prevent breakouts from causing big losses.

3. Beware of False Breakouts

Prices may break support/resistance but then quickly revert back within the same range due to low volume.

Signal: False breakouts are often accompanied by low ###Volume(.

Protection:

• Always check volume — a strong breakout should be supported by high volume.
• Set a clear Stop Loss, e.g., 2% of your account.

Summary

Support and resistance are not exact sciences because prices are not determined solely by numbers but by human behavior, including economic )buy/sell demand( and market psychology )feelings(.

What is certain is that when many traders see a certain level as support or resistance, it often becomes a real support or resistance zone.

Always remember: feelings are validated by real data. The more you practice and observe real charts, the clearer the picture becomes.