Support and resistance:
Support and resistance represent key junctures where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and buying. These terms are used interchangeably throughout this and other articles. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as bulls and bears slug it out for control.
A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to “bounce” off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely to continue dropping until it finds another support level.
A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. This means the price is more likely to “bounce” off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely that it will continue rising until it finds another resistance level.
Proactive support and resistance:
Proactive Support and Resistance methods are ‘predictive’ they often outline areas where price has not actually been.
They are formed based upon current price action that through analysis has been shown to be predictive of future
Reactive vs Proactive support and resistance
Most Traders will be aware of the many different types of Support and Resistance methods used by traders
price action. Proactive Support and Resistance methods include Elliot Wave, Fibonacci, Calculated Pivots,
Trendlines and Moving Averages. VWAP, Market Profile (VAH, VAL, and POC)
Reactive Support and Resistance are the opposite they are formed directly as a result of price action or volume
behavior. They include Volume Profile, Price Swing lows/highs, Initial Balance, Open Gaps and OHLC.
Both Proactive and Reactive Support and Resistance methods have merit and form a staple part of any Support and
Resistance based trading strategy