Now as we add support and resistance points what we want to check is, has price reacted to this same point in recent history other that the original point the market turned from. Something to note is that the markets are not mechanical entities where everything is perfect to the pip, there are times where you’ll see it almost seem magical that price reacts to within a pip a level but I assure you it’s nothing magical. The reality of this is each level should be considered a range around the actual horizontal line. The basics to understanding this is that as market orders are placed not everyone will use the exact same price some will place their orders above it some below it in a range. Add to that, that as the market moves to one of these levels it has to absorb the order flow that comes into the market which can cause overshoots as well as coming up short of the level, simply because there are enough orders placed early to this level being tested it absorbs the orders and a bounce or a rejection occurs, thus the market reverses direction; if it cannot absorb the orders around the level it is broken and price continues to move. There are slight deviations of price and charts from broker to broker that have to be accounted for…the slop I call it.
Other things we want to look for are do these levels align with previous transitional points in the market. These are the points where the market actually breaks the low or high of a previous trading period and reverses direction. We at Trade Kings Club call them Logic points. We also like to see highs of candles matched up in history with candle lows, which we like to call pivotal points. In figure 2 I’ve marked some of these points to our first 2 levels.