How to Use Support and Resistance Levels?

S / R Levels for the Week of May 5th - 9th

May 02, 2025

∙ Paid

In technical analysis, support and resistance levels are key price points on a chart where the probability of a price movement reversing its current trend is higher. They represent areas where buying or selling can be strong enough to halt and potentially change the direction of the price.

Support Levels: These are price levels where buying interest is strong enough to outweigh selling pressure, thus preventing the price from falling further. Think of it as a floor beneath the price.
Resistance Levels: Conversely, these are price levels where selling pressure is strong enough to overcome buying interest, thus preventing the price from rising further. Imagine it as a ceiling above the price.

How Support and Resistance Levels are Used to Validate Setups or Continuations:

Support and resistance levels are crucial tools for traders and investors to confirm the validity of trading setups and to gauge the likelihood of a trend continuation. Here's how they are used:

1. Validation of Reversal Setups:

Bullish Reversal: When a price approaches a well-established support level and exhibits signs of buying pressure (e.g., bullish candlestick patterns, positive divergence on oscillators), it can validate a potential long (buy) setup.
Bearish Reversal: Similarly, when a price reaches a significant resistance level and shows signs of selling pressure (e.g., bearish candlestick patterns, negative divergence on oscillators), it can validate a potential short (sell) setup.

2. Confirmation of Trend Continuation:

Breakout Above Resistance: When the price decisively breaks above a resistance level with strong volume and conviction candles, it can signal a continuation of the existing uptrend. Traders often look for a successful retest of the broken resistance (which then acts as new support) as further confirmation.
Breakdown Below Support: When the price breaks below a support level with strong volume, it can signal a continuation of the existing downtrend. This breakdown indicates that selling pressure has overpowered buying interest, and the price is likely to fall further. Traders may look for a successful retest of the broken support (which then acts as new resistance) as further confirmation.

3. Identifying Potential Price Targets:

Traders can use these levels as potential targets for their trades. For example, if a price breaks above a resistance, the next significant resistance level above it can be considered a potential profit target.

4. Managing Risk (Setting Stop-Loss Orders):

Support and resistance levels provide logical references to set stop-loss orders. For long positions initiated near support, the stop-loss is typically placed just below the support level (not exactly at the level). For short positions initiated near resistance, the stop-loss is usually placed just above the resistance level (not exactly at the level). If these key levels are broken, it suggests the initial setup was incorrect, and the trade should be exited to limit losses.

Every week I publish the support and resistance levels for 35 securities, and here are two important references for new premium subscribers and a reinforcement about how useful they are.

Refer a friend

SmartReversals was launched in Substack more than a year ago, and these levels have been published every Friday for the week ahead (yes, in advance, most models are based on trend lines, these are set ahead of price action).

The levels published every Friday include one central weekly level, with three supports below, and three resistances above, to provide a range of price action. The following chart encompasses the levels for the QQQ during the last six weeks, which were extremely volatile, let’s study the events highlighted:

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Events in the QQQ chart:

Indecision (doji candle) at resistance, and price starts a bearish reversal
The bearish target for the week was reached on Monday, setting a hammer-type candle that initiated a bullish reversal.
However, the central level (blue line) was reached with an indecision candle, and a gap down follows.
Bounce at the bearish target written in the Weekly Compass based on the levels
Three rejections at the central level (blue horizontal line), and it is finally breached at the fourth attempt.
The bearish target for the week was temporarily breached as the yellow arrow indicates, but price managed to bounce and once the resistance became support the day after, the latest rally initiated.
The week started with a selloff that kept the central level intact, so no confirmation of a dramatic reversal, as it happened on Wednesday.
$487.8 was the bullish target for this week based on last Saturday’s publication, the current indecision candle suggests caution.

Here is something interesting, the levels come with the monthly ones as well, so a combination of lines help even more the investors and traders who use then for the four purposes mentioned above: reversal validation, trend confirmation, price target setting, and risk management.

So below the paywall you find the weekly and monthly levels, and the technical charts include now combined references as the chart for IWM:

IWM: Momentum continues and the candle suggests bullish continuation, the bounces from below the lower Bollinger band are usually strong when the Stochastic is also oversold and setting a crossover. The bullish continuation for next week is expected as long as $197.5 continues as support, with a bullish target at $204.2. in case that $197.5 is lost, $193.7 is the most possible destination with potential overextension to the monthly level $190.

(weekly levels are in green, monthly levels are marked in blue; the weekly central level is in bold; and the price close on Friday is the one in black).

This new feature gives you better visibility of the combined levels. The levels in the chart helps an investor to monitor the analysis written based on technical indicators. If you like it, please use the hearth sign at the top of this email after the title.

SmartReversals’ Trading Compass

How to Use Support and Resistance Levels?

S / R Levels for the Week of May 5th - 9th

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