Understanding Support and Resistance Levels

Aug 8, 2024

Lecture on Support and Resistance

Recap of Previous Lesson

  • Learned how to identify support and resistance levels.
  • Different types of support and resistance: formed by one, two, or all three factors.

Today's Topic: Strong or Weak Support and Resistance

Rules to Determine Strong or Weak Support and Resistance

  1. Resistance:
    • Resistance forms on the call side, support on the put side.
    • Red boxes indicate 100% resistance.
    • The box closest to the spot price determines our resistance.
  2. Support:
    • On the put side, the closest box to the spot price is the support.
    • Example: 700 spot price as resistance, green boxes for support.

Identifying Strong Support and Resistance

  • Look for yellow boxes along with red boxes.
  • If no yellow boxes are near red boxes, resistance is strong.
  • Similar approach for support using green and yellow boxes.

Examples and Practical Insights

  • Use Nifty and specific strike prices to practice identifying support and resistance.
  • Consider volume and Open Interest (OI) for accuracy.
  • Yellow boxes indicate potential shifts in support/resistance.
  • Volume and OI without yellow boxes indicate strong resistance/support.

Shifting Support and Resistance

  • Identify if support/resistance is trying to shift up or down.
  • Use yellow boxes to see potential shifts.
  • Assume yellow boxes become 100% to test if support/resistance shifts.

Practical Exercises

  • Go through historical data to see how support and resistance behaved.
  • Use strike prices and volume/OI data to predict shifts.

Conclusion

  • Strong support leads to call buying, and strong resistance leads to put buying.
  • Weakness in support/resistance is identified by the presence of yellow boxes and shifts in volume/OI.
  • Practical examples reinforce understanding and help make better trading decisions.

Key Takeaways

  • Practice identifying strong and weak support and resistance using yellow and red/green boxes.
  • Understand the role of volume and OI in forming strong levels.
  • Use historical data for practical learning and better market predictions.
  • Strong support/-resistance levels prevent the market from moving easily in the opposite direction.
  • In cases of weak support/resistance, expect shifts and use them for informed trading decisions.