Levels and zones
Support and resistance
Prices where price turned before are treated as prices where it may turn again.
There is evidence for why price behaves this way. No published rule profits from it after costs.
Levels published by six dealers predicted where intraday moves would pause, with the effect lasting at least five business days after publication (1996-98, three currency pairs), and stop and take-profit orders were found clustered at round numbers. That explains why levels can matter. It does not show that a rule trading them makes money after costs.
What it is
Support is a floor where falling price stopped. Resistance is a ceiling where rising price stopped. Levels from higher timeframes count for more, and zones are more honest than single lines.
What it suggests
Many participants watch the same prices, and orders cluster around them. That clustering is the best-supported reason levels matter.
How to check it
Mark levels on the daily and weekly first, draw them as zones, and note how many times each has been touched.
Common mistakes
- Drawing dozens of levels until price always hits one.
- Treating a level as a certainty.
How we will test it
On public price history, never on anyone's account. Until it is done, the note above is all we can honestly say.
- Cases: price reaching a prior swing high or low zone on H4
- Measure: share of touches that hold, break or overshoot, and the average excursion, per market
- Window: next 20 bars
- Compared with: random price points
Sources
- Osler (2000), Support for resistance: technical analysis and intraday exchange rates, FRBNY Economic Policy Review 6(2) (abstract or primary page read)
- Osler (2003), Currency orders and exchange rate dynamics: an explanation for the predictive success of technical analysis, Journal of Finance 58(5) (abstract or primary page read)
- Mitchell and Izan (2006), Clustering and psychological barriers in exchange rates, Journal of International Financial Markets, Institutions and Money 16(4) (citation and headline finding only)
Related lessons
- Broken levels swap roles
- Round numbers
- Do levels break after two or three tests?
- Supply and demand zones
Written in our own words. Education only, not financial advice.