Supports & Resistances

Support Setup –
5 step process for Trading

1) Detection of a support forming

alongside certain level
2) Confirmation of a support
3) Entry on confirmation
4) Stop loss setting (with a margin
of safety)
5) Target setting as per conviction
of view
 What is a Support?
The detection

• A support is a level at which demand to buy the stock overpowers the supply to sell the stock which in
turn pushes the price up.
• The detection process involves spotting a level from which the price bounces upwards.
• Generally, the price bouncing twice from a certain level is enough to label that level as a demand zone
(or as we are learning currently : it is called a support)
 What is a Support?
The confirmation

Support confirmed
(at point 3)

• The confirmation process involves observing the price retest the detected demand zone, maintain it and
start moving upwards from that level.
• Understand that it acts like a floor preventing the price to fall below a certain level.
 What is a Support?
The entry

Entry

Support confirmed
(at point 3)

• The entry is once the confirmation process is complete and you as a trader are confident of this level to
maintain.
 What is a Support?
The stop loss setting

Entry

Stop loss
Support confirmed
(at point 3)

• The stop loss is below our support levels with a margin of safety
• Understand the psychology for this stop loss setting
 What is a Support?
The target setting

Target

Entry

Stop loss
Support confirmed
(at point 3)

• Though very subjective and everyone can have their own respective targets as per their requirements, it
is prudent to keep the previous high as a target
Example of a Support
Resistance Setup –
5 step process for Trading

1) Detection of a resistance
forming alongside certain level
2) Confirmation of a resistance
3) Entry on confirmation
4) Stop loss setting (with a margin
of safety)
5) Target setting as per conviction
of view
 What is a Resistance?
The detection

• A resistance is a level at which Supply to sell the stock overpowers the demand to buy the stock which
in turn pushes the price down.
• The detection process involves spotting a level from which the price turns downwards.
• Generally, the price turning down twice from a certain level is enough to label that level as a supply
zone (or as we are learning currently : it is called a Resistance)
 What is a Resistance?
The confirmation
Resistance confirmed
(at point 3)

• The confirmation process involves observing the price retest the detected supply zone, maintain it and
start moving downwards from that level.
• Understand that it acts like a ceiling preventing the price to rise above a certain level.
 What is a Resistance?
The entry
Resistance confirmed
(at point 3)

Entry

• The entry is once the confirmation process is complete and you as a trader are confident of this level to
maintain.
 What is a Resistance?
The stop loss setting (with a margin of safety)
Resistance confirmed
(at point 3)
Stop loss

Entry

• The stop loss is above our resistance levels with a margin of safety
• Understand the psychology for this stop loss setting
 What is a Resistance?
The target setting
Resistance confirmed
(at point 3)
Stop loss

Entry

Target

• Though very subjective and everyone can have their own respective targets as per their requirements, it
is prudent to keep the previous low as a target
Example of a Resistance
Do these levels hold
for eternity?
Resistance Breakout
Breakout

Resistance breached
Resistance

• It occurs because of a shift in sentiment and opinion of the people.

• Bears give up, bulls take over.
• Trader’s Insight
Resistance Breakout : Trade Setup
Breakout

Entry
Resistance
Stop loss

• It occurs because of a shift in sentiment and opinion of the people.

• Bears give up, bulls take over.
• Trader’s Insight
Example of Resistance Breakout
Mazdock (1 year – Daily)
Support Breakdown

Support Support breached

Breakdown

• It occurs because of a shift in sentiment and opinion of the people.

• Bulls give up, bears take over.
• Trader’s Insight
Support Breakdown : Trade Setup

Stop loss

Support Entry

Breakdown

• It occurs because of a shift in sentiment and opinion of the people.

• Bulls give up, bears take over.
• Trader’s Insight
Example of Support Breakdown
Bandhan Bank (1 year – Daily)
Support and Resistance : Order of play
Under various circumstances, by the • Buy alongside • Short alongside
forces of demand and supply, these support with stop resistance with
support and resistance levels can loss below stop loss above
breach and create massive stop loss support resistance
triggers which in turn lead to
exponential moves in the breached Support Resistance
direction. Holds Holds

Refer to the right side of the page to

understand Order of Play for these
important Support and Resistance Support Resistance
levels. Breaches Breaches

• Short below • Buy above

Support breaches downwards and support with stop resistance with
resistance breaches upwards. One can loss above support stop loss below
play these as well to bag amazing resistance
money making opportunities.
 Resistance to Support - Change in Polarity

Pullback
Resistance Support taken
breached Change in polarity
Resistance Resistance regained

Post breach of initial resistance and pullback

- Scenario 1 : Resistance regained, i.e. bears regained control of the resistance levels temporarily lost to the bulls.
-Scenario 2 : Support taken, i.e. bears could not regain control, in fact, the level which was holding as a resistance
now in turn acts like a support. This marks a change in polarity.
Prices have memories : Change in Polarity
Example of CIP :
Banknifty
Change in polarity are ranges/zones/levels
 Support to Resistance – Change in Polarity

Support regained
Support Support Resistance taken
breached Change in polarity
Pullback

Post breach of initial support and pullback

- Scenario 1 : Support regained, i.e. bulls regained control of the
support levels temporarily lost to the bears.
-Scenario 2 : Resistance taken, i.e. bulls could not regain control,
in fact, the level which was holding as a support now in turn
acts like a resistance. This marks a change in polarity.
Example of CIP : Bandhan Bank
(1 year – Daily)
Example of CIP :
Bajaj Finance
 Support & Resistance Tracker

The following are the requirements of the Trading

System:
• Sector
• Scrip and Scrip Tikr
• CMP linked from Google Finance
• Support Level
• Support Within 2% Trigger (around 2% from our
support levels)
• Points away from support
• Support Breached Trigger
• Resistance Level
• Resistance Within 2% Trigger (around 2% from our
resistance levels)
• Resistance Breached Trigger
• Points away from resistance
Trendlines
Observe the diagram on left hand side, understand that how during an uptrend, we can plot a supporting trendline
across the lows. Similarly, on the right hand side, during a downtrend, we can plot a resistance trendline across the
highs.
Arrows marked are points from where you can take trading positions.
Remember we need 3 points for confirmations, so the first 2 points can be used for marking trendline and not
making money off it.

Supporting trendline giving us Resistance trendline giving us sell on

buy on dip opportunities rise opportunities
Example of Supporting trendline
Example : Resistance trendline
What is a channel?
• If the supporting trendline and
resistance trendline are parallel
to each other, it is called a
channel.

• Incase it is sloping upwards, its

called a rising channel/upward
sloping channel. Incase it is
sloping downwards, it is called a
falling channel/downward
sloping channel.

• It is mainly used by traders as it

provides favorable entry and
exits.
Upward Sloping Channel Example
Downward Sloping Channel Example
What can happen if a supporting trendline
breaches?
What can happen if a channel breaches?
Do Resistance Trendline and
Supporting Trendline follow Change in Polarity?
Support and Resistance : Order of play
Under various circumstances, by the • Buy alongside • Short alongside
forces of demand and supply, these support with stop resistance with
support and resistance levels can loss below stop loss above
breach and create massive stop loss support resistance
triggers which in turn lead to
exponential moves in the breached Support Resistance
direction. Holds Holds

Refer to the right side of the page to

understand Order of Play for these
important Support and Resistance Support Resistance
levels. Breaches Breaches

• Short below • Buy above

Support breaches downwards and support with stop resistance with
resistance breaches upwards. One can loss above support stop loss below
play these as well to bag amazing resistance
money making opportunities.
Supporting Trendline & Resistance
Trendline Tracker
The following are the requirements of the Trading
System:
• Sector
• Scrip and Scrip Tikr
• CMP linked from Google Finance
• Support Level
• Support Within 2% Trigger (around 2% from our
support levels)
• Points away from support
• Support Breached Trigger
• Resistance Level
• Resistance Within 2% Trigger (around 2% from our
resistance levels)
• Resistance Breached Trigger
• Points away from resistance
 Basic Momentum
Indicators and Oscillators
& Order Placing
Momentum Indicators

• What are the momentum indicators?

• What is leading indicator? What is lagging indicator?
• What do they signify? How to interpret ? How to make money off them?

List
Moving Averages
Moving Average Convergence Divergence (MACD)
Relative Strength Index (RSI)
Moving Averages

Trend-following or lagging indicator because it is based on past prices

Smoothens out price action by filtering out the “noise” from random price
fluctuations thus makes it easier to spot a trend

1) Identify the trend direction (upward, downward or sideways)

2) Determine support and resistance levels (daily/weekly/monthly charts)
3) Generate trading signals using pairs crossovers (ST and LT)
 Moving Averages and
Trading Setups

Role 1:
Helps to identify trend
(Be it short term or long term)
 Helps to identify trend : Observe the 30 MA

Note : Apply 30 candles moving average on any timeframe chart and understand the underlying trajectory/trend
 Helps to identify trend : Observe the 30 MA

Note : Apply 30 candles moving average on any timeframe chart and understand the underlying trajectory/trend
 Helps to identify trend : Observe the 30 MA

Note : Apply 30 candles moving average on any timeframe chart and understand the underlying trajectory/trend
 Helps to identify trend : Observe the 30 MA

Note : Apply 30 candles moving average on any timeframe chart and understand the underlying trajectory/trend
Helps to identify trend (no trend here):Observe the 30 MA

Note : Apply 30 candles moving average on any timeframe chart and understand the underlying trajectory/trend
 Moving Averages and
Trading Setups

Role 2:
Identify support and resistance
levels
(Be it short term or long term)
Identify support and resistance levels:
Daily Chart (Short term) - Retrospective
Identify support and resistance levels :
Monthly chart (Long term) – Currently Active
 Moving Averages and
Trading Setups

Role 3:
Trade setups based on pairs
crossovers
Pairs crossovers
• Whenever a short term moving average intersects a long term moving average, it signals an upcoming price
movement expectation.
• If short term moving average intersects long term moving average from below to above, we get a buy
call.(See image on left)
• If short term moving average intersects long term moving average from above to below, we get a sell
call.(See image on right)
• Ensure that the long term moving average is atleast twice than the short term moving average, otherwise
the signals will come too quick and has a high fail percentage.

Sell

Long term
moving average Long term
moving average
Short term Buy Short term
moving average moving average
Pairs crossovers
• Your stop loss will be on the candle prior to this crossover. So incase of a buy call, crossover – 1 candle low
minus some points (0.50%) is the stop loss. Incase of a sell call, crossover – 1 candle high plus some points
(0.50%) is the stop loss.
• A lot pairs are currently playable in the markets. A few of them are 5 & 20, 9 & 18, 13 & 36, 50 & 200.
• As moving averages are different for different timeframes, a 5 & 20 would work on XYZ stock for daily
timeframe but not for its weekly or monthly timeframe.
• The entire effort of you as a researcher of moving average pairs crossover is to find appropriate pairs which
make sense and help you time the market accurately.

SL Sell

Long term
moving average Long term
moving average
Short term SL Buy Short term
moving average moving average
Example of pair crossovers (5&10) : Buy bias
Example of pair crossovers (5&10) : Buy bias
Example of pair crossovers (5&10) : Sell bias
Example of pair crossovers (5&10) : Sell bias
Moving Average Convergence Divergence (MACD)
Trend-following momentum indicator that shows the relationship between two moving averages of
prices

MACD Line : Difference of 26 and 12 MA. A nine-day EMA of the MACD, called the "signal line", is
then plotted on top of the MACD, functioning as a trigger for buy and sell signals

Divergence – The green bars in the indicator which measures the distance between the MACD line
and Signal Line
MACD Crossover Rules and Terminologies
Crossover Crossover time above/below 0 scaling Terminology
Blue intersects pink from below to above Below 0 Golden Cross
Blue intersects pink from below to above Above 0 Normal buy call
Blue intersects pink from above to below Above 0 Dead Cross
Blue intersects pink from above to below Below 0 Normal sell call

Sell if not
sold

Signal Line
Signal Line

MACD Line Buy if not MACD Line

bought
Example : Golden Crossover
Example : Dead Cross
MACD is late!
Relative Strength Index (RSI)

This data line oscillates between two extremes : 0 to 100

Values above 70 indicate that a security is becoming overbought or overvalued and may
be primed for a trend reversal or corrective pullback in price(bears to kick in soon)

Value at 30 or below indicates an oversold or undervalued condition indicating a trend

reversal or a corrective pullback in price (bulls to kick in soon)
For the Geeks
(Assume 14 day default strength)
Example – Oversold Zones
Example – Overbought zones
How do I make money of RSI in sideways markets (oversold +
overbought)?
How do I make money of RSI in sideways markets (oversold +
overbought)?
 RSI Divergence

Price

70
30

RSI
Bullish
Bearish Divergence Divergence
 RSI Divergence
SL
Price

SL

70
30

RSI
Bullish
Bearish Divergence Divergence
 Failure Swing RSI Divergence

Price

RSI stays below 70

RSI stays above 30

RSI Bullish
Bearish Divergence Divergence
 Failure Swing RSI Divergence
SL
Price

SL
70

30
RSI
Bullish
Bearish Divergence
Divergence
Example of playing RSI