Master the five core rules of support and resistance levels to increase trading success rate by 80%

I. The Truth About Support and Resistance Levels: Why 90% of Traders Are Wrong?

Most traders in the market still have a basic understanding of support and resistance. They think of support levels like a floor, where prices bounce back after falling; resistance levels like a ceiling, where prices retreat after rising. This concept sounds simple and straightforward, but because it’s overly simplified, 90% of traders make fundamental mistakes when identifying these levels.

Every day, countless times, prices pause or bounce at certain points on the chart. If you rush to enter a trade based on just one or two reactions, you’re likely to suffer painful lessons. The problem is: you cannot distinguish whether this level is a truly significant key level or just market noise.

That’s why it’s essential to learn the concept of Key Levels. A key level is a sensitive area where the market has previously shown stance, reacted strongly, or been rejected multiple times. It acts like a magnet, continuously attracting prices. When the market approaches this level again, smart traders can pre-position themselves to capture the next big trend.

II. Five Golden Rules for Identifying Key Levels

1. The more contact points, the higher the certainty

The simplest way to determine if a price level is a key level is to observe how often the market touches it. One or two touches might be coincidence, but if the same level is repeatedly tested and reacts multiple times at different times, it deserves attention.

Generally, if a level is touched more than three times and each time shows a clear reaction, it qualifies as a key level. The more contacts, the greater the influence of that level on the market.

2. Must have a strong market reaction

History tends to repeat itself, but only if significant events have occurred before. If the price passes through a level without a strong reaction, it’s unlikely to produce a major move again in the future.

Markets have memory. Traders remember impressive rallies or crashes. When prices revisit areas of past volatility, expectations of “history repeating” naturally arise. Large institutional orders often lurk here, creating strong support or resistance.

3. The level must be clear and visible at a glance

A high-quality key level should be very clear and easy to identify, without over-interpretation. If you need to repeatedly confirm or doubt whether a level is key, it indicates the signal isn’t strong enough, and it’s better to abandon it.

Why? Because when a genuine trading signal appears, your mind might already be filled with doubt. This hesitation can severely impact execution. Even if you enter, you might close early due to self-doubt, missing out on a major move.

4. Has been rejected multiple times before

Another characteristic of a key level is repeated rejection. On the chart, you’ll see candlesticks with long upper or lower shadows at that level, indicating multiple attempts to push through but being forcefully pulled back.

Each rejection signifies strong forces guarding that level. The more rejection signals, the more important that level is for both buyers and sellers, implying future breakouts or pullbacks could be more intense.

5. Acts as both support and resistance at different times

In trading, there are no eternal enemies or friends. A true key level can serve as resistance during some phases and support during others.

When the price breaks above a previous resistance, it often retests that level. If the price is rejected downward here, it indicates yesterday’s resistance has turned into today’s support. The more frequently this role reversal occurs, the stronger the evidence that it’s a powerful key level.

III. Five Common Mistakes When Searching for Key Levels

Mistake 1: Drawing too many lines on the chart causes visual clutter

Many beginners tend to mark all support and resistance levels they see. The result? The chart becomes cluttered with lines, making it hard to see the true price action.

The danger is that many of these lines are just market noise and do not meet the criteria of a true key level. Excessive lines distract attention and impair decision quality. The correct approach is: keep the chart simple and clear, only marking the most obvious, important, and recent support/resistance levels.

Mistake 2: Entering impulsively upon seeing a key level

The most common mistake after identifying a key level is rushing into a trade. For example, seeing a sharp decline when the price previously touched a level, then shorting as it approaches again.

The problem is: a key level is a battleground, not a one-sided reaction point. Both bulls and bears are fighting for control here. Previous resistance may have turned into support, and the price might break through rather than bounce.

The correct approach is to wait for clear trading signals—such as specific candlestick patterns (like shooting stars or hammers), technical indicator confirmations (like RSI at extreme levels), or a retest after a breakout. Only when multiple signals align is it a true entry point.

Mistake 3: Treating a key level as a line instead of a zone

Market movements are rarely exact copies of past behavior, especially in the young cryptocurrency market. The price might trigger reactions 0.5% above or below the key level, which is normal.

Defining a key level as a precise line can lead to tight stop-losses and being prematurely stopped out. The correct method is to define the key level as a reasonable zone, bounded by two lines, creating an area. This preserves trading opportunities and provides enough room for stops.

Mistake 4: Drawing too large a zone, causing signals to be fuzzy

Conversely, if the zone is too broad, the same problem arises—when a trading signal appears, hesitation occurs because the zone is too wide, and it’s unclear where exactly to execute the plan.

The solution is: connect the contact points of the candlestick bodies, not the wicks. The bodies represent the final closing prices (the result), while the wicks are just the attempts (the process). Connecting the bodies narrows the zone to a reasonable range.

Mistake 5: Only looking for key levels on small timeframes

The smaller the timeframe, the less reliable the key levels. Larger timeframes provide more preparation time, stronger consensus among traders, and more significant support for key levels.

It’s recommended to proceed from higher to lower timeframes: first identify major levels on weekly charts, then confirm recent key levels on daily charts, and finally find entry points on 4-hour and 1-hour charts. This approach greatly improves trading success rates.

IV. How to Precisely Mark Key Levels in Practice

Marking levels is simple, but requires careful execution:

Step 1: Use a line to connect as many candlestick contact points as possible, prioritizing connecting candlestick bodies over wicks.

Step 2: Draw one line above and one below this line, each touching as many contact points as possible.

Step 3: Remove the middle line, leaving the upper and lower lines to form a zone, which is the initial key level.

Step 4: If the zone is too wide, fine-tune it following the “prefer connecting bodies” principle until you get a clear, effective range.

The core principle is: candlestick bodies are preferred over wicks. When conflicts arise, sacrifice the wicks to maintain the precision of the key level.

V. Market Reactions at Key Levels: Three Typical Patterns

When the price enters a key level zone, three common scenarios occur:

1. Trend Reversal—Identifying Reversal Signals

Reversals often have clear signs. The most direct signals are candlestick patterns like shooting stars (long upper shadow) or hammers (long lower shadow), especially effective at key levels.

A deeper observation involves decreasing candlestick size. When approaching a key level, if each candlestick is smaller than the previous, it indicates waning upward momentum. Buyers are losing control, and a reversal is imminent.

Combine this with RSI—when RSI is over 70 (overbought) or below 30 (oversold) at the key level, the probability of reversal increases significantly.

Another sign is increased retracement frequency. As the price moves upward, it may initially advance smoothly, but near the key level, it begins to retrace more often and with larger swings, indicating accumulating selling pressure. Eventually, the price will reverse completely.

2. Breakout—Beware of false break traps

Breakouts are the most common but also the easiest to fall for. Many traders see the price break a key level and immediately follow, only to get trapped.

The truth is: false breakouts are common around key levels. After a breakout, the price may just be testing, and a stronger candlestick will pull it back, trapping impatient traders.

To avoid false breakouts: wait for a retest after the breakout. When the price breaks above resistance, the smart move is to wait for it to return to that level. Look for candlesticks with long wicks trying to push lower but being strongly pulled back—these confirm that yesterday’s resistance has turned into today’s support. Only after confirming this should you confidently follow the move.

3. Range-bound consolidation—Signals of power accumulation

Sometimes, the price oscillates within a narrow range at the key level, forming a consolidation zone where forces are temporarily balanced. The trading strategy here is to observe and wait, not to participate.

The reason is simple: profit potential in consolidation is small, and risk-reward isn’t attractive. More importantly, don’t try to guess the breakout direction. Only when the market clearly breaks out or down, with a definite trend, is it the right time to trade.

A practical tip is to draw a rectangle around the consolidation zone and observe where the price stays within it. If it remains in the upper half, buyers are accumulating strength for an upward breakout; if in the lower half, sellers are gathering momentum. Use this to plan entries in advance.