S/R Flip in Technical Analysis

1. What does the “S” stand for?

In trading, the concept of “support” refers to a price level at which a financial instrument, such as a stock, commodity, or currency, tends to stop falling and may even experience a reversal and start moving higher. It is a key technical analysis term used by traders to make informed decisions about buying or selling assets.

Support levels are often identified on price charts where the price has historically had difficulty falling below. These levels can be seen as a psychological or structural foundation for the market. Traders believe that at these levels, there is enough buying interest to counteract selling pressure, preventing the price from declining further.

Notice in the picture, and how price action bounced at that level 3 times. We would consider that line, or area, to be support.

2. What does the “R” stand for?

In trading, the concept of “resistance” is the opposite of support and refers to a price level at which a financial instrument, such as a stock, commodity, or currency, tends to encounter selling pressure and struggles to move higher.

Resistance is a key term in technical analysis and is used by traders to identify potential levels at which the price might face obstacles in its upward movement.

Notice the red line in the picture, and look how price rejected at the line 2 times. We would consider that line, or area, to be resistance.

I like to think of resistance as a ceiling and support as a floor. Price can come to resistance, but it likely to reject the level or zone if it has prior. If price has bounced at a certain level, we could likely consider it a short term floor.

3. What does an S/R flip mean?

An S/R flip (also known as a support and resistance flip) represents a level that used to be either support or resistance, and price has now broken through those levels. It serves as a powerful technical analysis tool.

When price comes back to previous resistance or support, we would consider the level now to be the opposite of what it just was. Didn’t make sense?

Think of a ceiling and a floor. The floor is support and the ceiling is resistance. If we break through the floor, what used to be a floor (that we are now below) becomes a ceiling. If we break through the ceiling, the ceiling now becomes the floor, hence the S/R flip.

Let me give you a S/R flip example to better explain:

4. S/R Flip Example

Let’s say $AAPL, Apple, has gotten to $100 per share 3 times, but each time it went back down to $90. We would consider the rejection of the $100 level as an area of resistance. But now lets say $AAPL gets above $100 and is trading at $120. We finally got through $100, let’s go!

Now $AAPL is trading at $120 but is starting to fall. Now $AAPL is right back to $100. But what happens now? Does it fall through $100, or does it bounce?

Since $100 used to be previous resistance, and we broke though the level by getting above it to $120, and now that price is falling back to $100, we would consider the new level at $100 to be support. It flipped from resistance to support. Hence the S/R flip.

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Key Principle:

The first revisit, or retest, of a level that was prior support or resistance is always the most powerful.

What does that mean? The first time price revisits a level that used to be support or resistance can be relied upon the most. If it is the 2nd or 3rd time price is back to previous support or resistance, the less likely the S/R flip will perform as intended. It is more likely to fail the more times it tests the zone or area.

Notice in the picture how price has rejected the red area three times. By this principle, the next test of the area is likely weaker to reject it than the prior 3.

S/R Flip Educational Videos:

Support and Resistance continued:

Key points about support in trading:

Price Floor: Support is often viewed as a price floor. When the price approaches a support level, traders anticipate that buying interest will increase, preventing the price from dropping significantly below that level.

Reversal Signal: If the price reaches a support level and starts to bounce back upward, it may be interpreted as a signal that the downward trend is losing strength, and a potential reversal might occur.

Identifying Support: Traders use various technical analysis tools to identify support levels, including trendlines, moving averages, and historical price data. Common chart patterns like double bottoms or triple bottoms are also used to identify potential support zones.

Dynamic Nature: Support levels are not static; they can change over time as market conditions evolve. New support levels may form, while old ones may lose their significance.

Confirmation: Traders often look for confirmation signals, such as increased trading volume or the presence of other technical indicators, to strengthen their confidence in the validity of a support level. I ALWAYS WAIT FOR CONFIRMATION WHEN USING S/R FLIPS AND SUPPORT AND RESISTANCE.

It’s important to note that while support levels can be useful for making trading decisions, no analysis method guarantees success, and trading always involves risk. Traders often use a combination of technical and fundamental analysis along with risk management strategies to make informed decisions in the financial markets.

Key points about resistance in trading:

Price Ceiling: Resistance is seen as a price ceiling or a level where the selling interest tends to increase, preventing the price from rising further. It represents a zone where a significant number of sellers are willing to sell their assets.

Reversal Signal: When the price approaches a resistance level and starts to decline, it may be interpreted as a signal that the upward trend is losing strength, and a potential reversal might occur.

Identifying Resistance: Traders use various technical analysis tools to identify resistance levels, including trendlines, moving averages, and historical price data. Common chart patterns like double tops or triple tops are also used to identify potential resistance zones.

Dynamic Nature: Resistance levels are not static and can change over time as market conditions evolve. New resistance levels may form, while old ones may lose their significance.

Confirmation: Traders often look for confirmation signals, such as increased trading volume or the presence of other technical indicators, to strengthen their confidence in the validity of a resistance level.

Breakouts: If the price manages to break above a resistance level, it may be seen as a bullish signal, indicating that the previous selling pressure has been overcome, and the price may continue to rise. Traders often watch for breakout opportunities above resistance levels.

Understanding both support and resistance levels is crucial for traders as they help in making informed decisions about entry and exit points, setting stop-loss orders, and identifying potential trend reversals. Traders may use a combination of technical and fundamental analysis, along with risk management strategies, to navigate the complexities of the financial markets.