Major and minor support and resistance

Although many analysts describe support and resistance levels as either major or minor, those terms are subjective and provide little guidance to the trader as to how seriously such a level should be viewed. Here are some rules of thumb.

The strength of a support or resistance level, or a trendline, is based upon three elements: duration, durability, and bracing:

•    The longer a level has been recognised by the price action—through pauses, reversals, or testing—the stronger that level becomes and the more influence it has over the price action and the underlying chart.
•    The more times a level withstands testing, from above as support and/or from below as resistance, the stronger the level becomes. This testing can be at multiple points in time, as the price action repeatedly returns to that level on the chart over a period of months, or over a concentrated time span, as is the case in a consolidating triangle or range-trading.
•    Sometimes other elements on a chart act to brace a support-resistance level or trendline. Examples include widely-traded moving averages, such as the MA-200 or MA-55, or a Fibonacci retracement level, which may coincide with the technical level in question. When two or more chart elements or indicators brace each other, again, the level becomes stronger.

Remember that support-resistance levels were made to be tested, re-tested, and broken, and the attention they’re given is determined by the time frame of the trade. Short-term traders may focus only on the next applicable level, while longer-term traders will be more concerned with the strongest major level and its control of the trend or range.

When last analysed, National Australia Bank (NAB) was consolidating within a short-term ascending triangle, beneath a major support-resistance level at 26.00 although minor resistance at roughly 25.00–25.50 served as the triangle’s upper boundary. Almost immediately after that analysis, NAB broke beneath the triangle, dragging the price action to a stronger and more distant lower support boundary, as shown on the chart, below:

Note that the runaway gap between 26.73 and 26.48 remains unfilled, and was briefly joined by another, between 23.25 and 23.41, now filled by the price action since the chart analysis.

With the short-term gap filled, traders should watch for NAB to roll back to the minor resistance level at 25.00–25.50. In the longer term, both the major resistance and the major support levels remain in place. If neither is successfully broken, NAB may be in for a time of range-trading.

technical analysis by Craig Liles