Support & Resistance — the Foundation

7.1 What support & resistance actually are

Support is a price level below the current price where buying interest has historically emerged strongly enough to reverse a decline. Resistance is the mirror above: a price where selling has repeatedly overwhelmed buying.

These are not lines; they are zones. Price rarely turns at exactly the previous swing high or low — it turns within a few points of it. Draw S/R as narrow rectangles (5–10 points wide on Nifty daily; 20–30 points on BankNifty), not as single lines. This one shift eliminates most of the "the level held for a while, then broke by 3 points, then reversed" frustration.

7.2 How to find levels — the six sources

1. Prior swing highs and lows — the most durable levels. Multi-month swing highs on the daily chart matter for weeks. Weekly swings matter for months
2. Prior day's high, low, and close — the freshest intraday levels. Updated every night. Essential for intraday traders
3. Round numbers — 25,000 / 25,500 / 26,000 on Nifty. Psychological, not fundamental, but very real
4. Moving averages as dynamic S/R — EMA 20 and EMA 50 on daily; EMA 20 on 15-min. Price often bounces off these in a trending market
5. Fibonacci retracement levels — 38.2%, 50%, 61.8% of the last swing. Best used when the swing being retraced was clean and directional
6. Trendlines — dynamic S/R along a moving line. See TA Ch 2 for drawing rules

7.3 Level quality — not all levels are equal

Levels vary in strength. A level's quality depends on:

• Number of prior touches — 2+ touches = valid level. 4+ touches = strong level. 6+ touches = major level often about to break
• Timeframe of formation — weekly-chart levels are stronger than daily; daily stronger than intraday. Always identify levels on the higher timeframe first
• Recency — recent levels (last few months) matter more than levels from 5 years ago. Old levels can still work but need confirmation
• Alignment — a price where a swing high, an EMA, and a round number all cluster is a very strong level. "Confluence" is real

7.4 Using S/R in a trading strategy

The three ways levels are used in price action strategies:

Reversal at the level

Wait for a price action reversal pattern (pin bar, engulfing, morning/evening star) to form AT the level. Enter on trigger, stop beyond the level. Target the next opposing level.

Breakout of the level

Wait for a decisive close through the level with volume expansion. Enter on the close (aggressive) or on the retest of the broken level (patient). Stop back inside the level. Target the next same-direction level.

Range trading between levels

When price is bounded between two well-tested levels, buy at support, sell at resistance until one side breaks. Best used in a neutral market bias (see Ch 6).

7.5 Role reversal — the polarity rule

When price breaks a support level decisively and closes below it, that former support tends to act as resistance on any subsequent retest. And vice versa — broken resistance becomes support.

This "polarity flip" is one of the most reliable structural principles in price action. It's the mechanical basis for the classic retest entry:

1. Level breaks with a strong close beyond it
2. Price pulls back to retest the broken level
3. Reversal pattern forms at the retest (pin bar, engulfing)
4. Enter on trigger; stop beyond the retest extreme; target the next same-direction level

7.6 On the chart

Nifty daily. Zoom in and try to draw 3–5 horizontal S/R zones based on the six sources above. Look for confluences — where a prior swing overlaps with a round number, or where an EMA and a swing high line up. Those are the levels worth remembering.