Price Action Trading Concepts – Part II

Articles From: QuantInsti
Website: QuantInsti

See Part I for an overview of price action trading and the different types of charts.

Concept of support and resistance

Resistance is an important level where the available supply tends to exceed the overall demand and this stops prices from increasing any further. In most cases, prices will face huge selling pressure and a sharp downtrend can be expected when the price reaches this zone.


The above figure displays a very strong resistance zone near the 2300 price band.

On the contrary, Support is an important price level where the demand for an asset exceeds the available supply and this stops prices from falling any further. In most cases, the asset may seem undervalued at a key support level, resulting in investors/traders buying into the asset and creating fresh long positions.


The above figure displays a key support/demand zone around the 160 price band and a strong resistance zone near the 360 price band. Watch how the price trend strongly reverses when it enters these important zones.

Concept of trendlines

A trendline is a straight line that connects at least three swing highs or three swing lows and extends towards the future to act as a support or resistance zone. Most properties that are applicable to support and resistance zones can be witnessed at trendlines as well.

Price Action Trading Concepts – Part II


The above image shows us a trendline connecting swing highs from the year 2015 to the year 2020. As we can observe, the price was in a downtrend as it formed a series of lower highs and lower lows during the period.

Stay tuned for the next installment of this series to learn how to identify support and resistance using Python.

For additional insight on this topic visit QuantInsti blog:

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from QuantInsti and is being posted with its permission. The views expressed in this material are solely those of the author and/or QuantInsti and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.