The second kind of support and resistance that price remembers well is the RECENT kind, i.e. the places that price found support or resistance at within the most recent trading periods.
There are a couple of ways to spot these levels on your price chart and the first way that I will demonstrate is the use of floors and ceilings on the medium term timeframes such as the 15 minute chart.
A floor is a support level on the chart that price comes to but can’t break through, but at the same time it’s not instantly repelled by that level either. A ceiling is exactly the same concept except that instead of being a support the level is a resistance.
Here is an example:
Above you can see that price comes down to an area of support and just dances along it for a while before deciding to break through it. Then in the following trading session price rallies back up to this old floor and there is a strong reaction as it pushes price back down.
The chart above is the 15 minute time frame, and I personally find this to be the most useful when looking for these kinds of set ups. Again you need to remember that you can’t just trade off this level alone, there must always be some other things at the same price telling you to buy or sell, previous levels of support and resistance are just one such thing to look for.
Here is an example of a ceiling:
Above you can see that price hit a ceiling and ultimately this level proved too strong as price was eventually repelled completely.
If price approaches this level again in the next couple of trading sessions, providing there are some other things at or around the same price, this may be a very nice level to try and trade from.
Another way to spot these recent levels is to use higher timeframes to find where the reaction was the strongest.
These recent reactions will be manifested on the higher timeframes, as Fractals, otherwise known as swing points.
These are the same swing highs and lows that you use to draw your Fibonacci from and calculate market flow by. You can use any one of the higher timeframes, such as the 1 hour, or the 4 hour or maybe even the daily chart to find your fractals on.
Remember, when using fractals as previous S&R it’s best to use the fractals that occur during the most recent trading periods as price tends to remember fractals much better from the recent past. The further back you go the less reliable they become.
Here is an example:
Above I have highlighted all of the Fractals from the previous trading session, on the 1 hour chart.
Once you know which fractals you will be using it’s a good idea to draw them in as horizontal lines on your price chart so that you can see these lines on a lower timeframe such as 15 minute for example.
Here is what this would look like:
As you can see I have plotted each of the 1 hour fractals from the previous trading session as black horizontal lines and then swapped down to the 15 minute chart.
Now these fractals are visible as the black lines, and if you look you can see that the one I have pointed out is close to a pink dotted line. This Pink line is the main central daily pivot, and you can also see that as the price hit it, it acted as strong resistance and pushed price down.
This is just an example to show you how these levels can be used as nice levels to be included in your confluence of support or resistance from which to trade from. You may decide to use 4 hour fractal levels, or possibly even daily ones, you may also decide that you’re going to look for an overlap of Fibonacci retracements with these levels, or maybe even pivots… or all three!
The important thing is to select a specific set up that you will trade and just wait for these to appear, it doesn’t matter what the set up is, as long as your including the correct things within your set up, and previous levels of support and resistance such as the examples above are certainly a powerful tool to incorporate.
This will simplify your trading greatly and make it much easier.
You may have a really nice level that you have spotted on the price chart but you wouldn’t be looking at trading off that level unless you had a nice solid confluence of other reasons to buy or sell from that level.
Next: Previous & Expected