This is a second post in the series of “How To Decide Entry And Exit Points In Intraday Trading” the first post was an introduction to this methodology. Now in this second post, we are going to discuss the first step that is “Deciding Important Levels Of Intraday Support And Resistance On Chart”.
What Is It Mean By “Important Price Level”?
It is a level of price in the future, where it has the potential to change the equation of supply and demand which is the cause of the current price move.
Thus when demand is greater than supply price will move up and continue to move up until it meets a resistance area which can provide enough supply to overcome this demand and then this increased supply will drive the price down. So the price level at which this phenomenon occurs is called resistance area.
And with the exactly opposite logic, when the supply is greater than demand price will move downward and continue to move down until it meets a support area which can provide enough demand to overcome the supply and then this increased demand will drive the price up. So the price level at which this phenomenon occurs is called support area.
Potential Resistance And Support:
If there is a resistance level in the present it means that there are more sell orders than buy orders in this price area. Until this sell orders are executed, they will continue to provide resistance around that price level. So this level will become potential resistance to rising price. Thus resistance and support area of the present will become potential resistance and support area of future.
Why do we call it potential support and potential resistance area? Because future price movement can either respect this levels or it can also break out of this level. Whether the level will be respected or broken out can be predicted through the signature of price and volume.
Change Of Role From Resistance To Support And Support To Resistance:
Mostly when price breaks out of a potential resistance level, the same level will now act as a potential support area. And it is also true in the case of the price breakout below the support level. Whenever a potential resistance becomes support and potential support becomes resistance, this makes these level stronger and reliable for trading.
So in intraday trading, we search for such reliable levels which have been respected several times from both sides. We search for such levels on last 5-10 or more days intraday chart and mark these price levels. These are important levels of trading as the price will often swing back and forth these levels. The frequency of how much time price swing between these level is also an indication the of the strength of the ongoing trend.
How To Find Important Intraday Support And Resistance Levels Of Price?
1. Watch 5-min Intraday chart of last 5-10 days.
2. Decide major support and resistance which are tested from both sides more than 3 times.
3. Decide minor support and resistance which are tested from one side more than 3 times.
4. Write this price level or draw it on your chart for Intraday trading.
This process is explained in the last section of the following video with Nifty 5-min intraday chart. More practice examples will be available in the coming posts.