a peak and a downtrend looks like a trough. Price will often respect these support and resistance levels, in other words, they tend to contain price movement, until of course price breaks through them. Aim to find the key daily chart levels, like we showed in the examples above, as these are the most important ones. When a price action entry signal forms at a key level of support or resistance, it can be a high-probability entry scenario. Heres an example of a market testing previous swing points (support) in a downtrend, note that as the market comes back to test the old support, the level then behaves as new resistance and will very often hold price. You can see how this level stayed relevant months later, even after the trend changed from down. Support and resistance levels can carve out trading ranges like we see in the chart below and they also can be seen in trending markets as a market retraces and leaves behind swing points. The next chart example show us how sometimes in trending markets a previous swing level will act as a new support or resistance level and provide a good level to focus our attention on for price action entry signals. The important thing to realize is that this is not an exact science, instead it is both a skill and an art that youll improve at through training, experience and time. Its wise to look for an entry point into a trend as it comes back and tests these previous swing points (see pin bar sell signal in chart below because its at these levels that the trend is most likely to resume, creating a low-risk. In this case, the trend was up and a previous swing high in the uptrend eventually flipped into a support level after price broke up above.
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In the chart below, we see an example of support and resistance levels containing price within a trading range. Finally, the last chart we are looking at is an interesting one. Support and resistance levels are horizontal price levels that typically connect price bar highs to other price bar highs or lows to lows, forming horizontal levels on a price chart. When in doubt about whether to take a particular price action entry signal or not, ask yourself if its at a key level of support or resistance. Since this fakey showed such aggressive reversal and a false-break of the key resistance, there was a high-probability that price would continue lower following the signal. What is support and resistance?