The next chart example show us how sometimes in trending markets a previous swing level will act as a new support or resistance level and provide a good level to focus our attention on for price action entry signals.
In this case, the trend was up and a previous swing high in the uptrend eventually ‘flipped’ into a support level after price broke up above it. We can see that when price came back to retest that level the second time, it formed a nice pin bar entry signal to buy the market and re-enter the uptrend from a confluent level in the market.
Finally, the last chart we are looking at is an interesting one. Note the swing low that occurred in the down trend on the left side of the chart. You can see how this level stayed relevant months later, even after the trend changed from down to up. It first acted as a resistance level after price broke down through it, but once that resistance was broken, we had an uptrend form and then after that, that same level acted as support, and that’s where we see the fakey pin bar combo signal in the chart below:
Tips on Support and Resistance
Don’t get too carried away with trying to draw every little level on your charts. Aim to find the key daily chart levels, like we showed in the examples above, as these are the most important ones.
The horizontal lines of support or resistance that you draw won’t always touch the ‘exact’ high or low of the bars it connects. Sometimes, it’s OK if the line connects bars slightly down from the high or up from the low. The important thing to realize is that this is not an exact science, instead it is both a skill and an art that you’ll improve at through training, experience and time.
When in doubt about whether to take a particular price action entry signal or not, ask yourself if it’s at a key level of support or resistance. If it’s not at a key level of support or resistance, it might be better to pass on the signal.
A price trading strategy, such as a pin bar, fakey, or inside bar strategy has a significantly better chance of working out if it forms from a confluent level of support or resistance in a market.