Imperial Research Support and resistance
Support and resistance: three ways to trade a level
A level is a price where the market turned before. You can trade it three ways: the breakout and retest, the reversal, and the false breakout. The study asks you to spot the trap.
Checked 3 November 2026
Show the solution
Solution: C. C closed above resistance, drew in breakout buyers, and the next candle closed back below the level: a failed breakout. Those buyers' stops became fuel for the drop that followed. B is a reversal trade from support. A is the honest breakout: it closed above, came back to test the level from above and held.
Cancelled if price closes back above C's high.
Illustrative diagram, not market data.
The three trades
| Trade | Wait for | Stop | Fails when |
|---|---|---|---|
| Breakout and retest | A close beyond the level, then a retest that holds | Back inside the level | The retest closes back inside |
| Reversal | A rejection candle at the level | Beyond the zone | A close beyond the zone |
| False breakout | A close beyond, then a close back inside | Beyond the false break's extreme | Price reclaims the break |
Why false breakouts work
Breakout traders buy the close above resistance and place stops just under the level. When the next candle closes back below, they are trapped, and their stops sit right under the market. That is the same mechanism as a liquidity sweep, only slower: one candle closed beyond before the failure.
Choosing between them
Let the higher timeframe decide. In an uptrend, favour breakouts of resistance and reversals at support. In a range, favour reversals at the edges and false breakouts. Against a strong trend, skip reversal trades at all.
Questions
What is the difference between support and resistance and supply and demand?
Support and resistance are prices where the market turned. Supply and demand zones are the areas where the move started, usually the base before a strong candle. They often overlap; zones are wider.
Should I draw lines or zones?
Zones. Price rarely turns at the exact same tick. Draw a band from the bodies to the wicks of the turning points.
How many touches make a level strong?
Two or three touches make it visible. But every touch also attracts more stops beyond it, so a level touched many times is also a level likely to be swept.
Where do I put the stop?
Beyond the zone, not on it. For a long at support, under the zone and under the last sweep low; for a breakout, back inside the level.