Support and resistance zones

Classic chart analysis is built upon the concept of support and resistance levels. By and large, support and resistance are thought of as precise numbers. For example, if a market drops to a price of 100, and then climbs to 110, the low at 100 is considered support. Resistance is a peak price: If the market then backs off and eventually bounces off 100, then resistance is at 110.

Short-term traders typically interpret support or resistance as low-risk levels at which to place trades. One technique during an uptrend is to buy a pullback that ends near a previous support point and exit the trade with a small loss if the support is broken. Similarly, in a downtrend, you would go short when a bounce stalls near a previous resistance level.

At what point can you say price has come close enough to the support or resistance level to warrant taking a position? Very rarely will a market trade to the exact level of a previous low and then rally. A solution is to plot support or resistance “zones” and use a setup to trigger a trade once the market enters the zone.