How to Trade Support and Resistance Levels
By Daniel Chau
Founder, NeuroBacktest
Learn how to identify key support and resistance zones and build backtests around bounce and breakout setups.
Support and resistance are horizontal price levels where buying or selling pressure has historically been strong enough to stop or reverse a move. Identifying these zones helps traders plan entries, exits, and stop placements.
How to Identify Support and Resistance
- Swing highs and lows: Previous turning points often act as future barriers.
- Round numbers: Psychological levels like $100 or $50 frequently attract orders.
- Volume profile: Areas with heavy volume show where many positions were opened.
Bounce vs Breakout
A bounce trade enters near support expecting a reversal. A breakout trade enters after price decisively moves through resistance, expecting continuation. Both approaches require confirmation, such as increased volume or a candlestick pattern.
Backtest Support and Resistance
Use NeuroBacktest to test rules like: "Buy AAPL when price pulls back to the 50-day SMA support and bounces with above-average volume."
Frequently Asked Questions
What is support in trading?▼
Support is a price level where buying interest has historically been strong enough to stop or reverse a decline. It acts as a floor for price.
What is resistance?▼
Resistance is a price level where selling pressure has historically been strong enough to stop or reverse a rally. It acts as a ceiling.
Can support become resistance?▼
Yes. When price breaks below support, that level often becomes resistance on the way back up. The reverse is also true for broken resistance becoming support.