Support and resistance lines are horizontal lines on a price chart marking levels where price has historically reversed or paused, representing areas where buying or selling pressure consistently emerges. These upper indicators form the foundation of technical analysis because they represent collective market psychology – support shows where buyers step in to prevent further declines, while resistance reveals where sellers emerge to cap advances. For option traders, these lines are goldmines for strike selection, providing clear levels to place strikes beyond for higher probability trades. Understanding how to identify, validate, and trade around support and resistance transforms random option selling into strategic income generation with defined risk parameters.
What Creates Support and Resistance
These levels form from market psychology:
Support Formation
- Previous low that held multiple times
- Prior resistance that broke (now acts as support)
- Round numbers ($50, $100)
- Moving averages
- Gaps that later fill
- High-volume reversal points
Buyers remember profitable entry points and return.
Resistance Formation
- Previous high that rejected multiple times
- Prior support that broke (now acts as resistance)
- Psychological barriers
- All-time highs
- Unfilled gaps above
- Heavy selling zones
Sellers remember profitable exit points and return.
Identifying Strong Levels
Not all lines are created equal:
Validation Criteria
Number of Touches: More = stronger
- 2 touches: Potential level
- 3-4 touches: Confirmed level
- 5+ touches: Major level
Time Frame: Longer = stronger
- Intraday: Hours/days validity
- Daily: Weeks/months validity
- Weekly: Months/years validity
Volume: Higher = stronger
- High volume at level
- Confirms real interest
- Institutional participation
Types of S/R Levels
Major Levels: Multi-year highs/lows Intermediate: Monthly highs/lows Minor: Weekly/daily levels Micro: Intraday only
Focus on major/intermediate for options.
Drawing Support and Resistance
Proper technique matters:
Horizontal Line Placement
Use Wicks or Bodies?
- Bodies show close prices (preferred)
- Wicks show extremes
- Zone approach best
- Not precise lines
Clean Charts
- Start with line chart
- Identify obvious levels
- Switch to candles
- Confirm placement
Support/Resistance Zones
Better than single lines:
- 1-2% range around level
- Accounts for noise
- More realistic
- Better strike placement
Example: $100 resistance = $99-101 zone
Trading Support and Resistance
Systematic approaches:
Support Trading
At Support:
- Buyers likely emerge
- Bounces expected
- Sell puts below support
- High probability setup
Support Holding:
- Multiple tests, holds
- Strengthens over time
- Increase position size
- Trail stops to support
Support Breaking:
Resistance Trading
At Resistance:
- Sellers likely emerge
- Rejections expected
- Sell calls above resistance
- High probability setup
Resistance Holding:
Resistance Breaking:
S/R for Option Strike Selection
Critical application:
Conservative Strike Placement
Put Selling:
- Identify support at $48
- Sell $46 puts (below support)
- Extra protection buffer
- Support must break first
Call Selling:
- Identify resistance at $52
- Sell $54 calls (above resistance)
- Extra protection buffer
- Resistance must break first
Aggressive Strike Placement
At Support: Sell $48 puts At Resistance: Sell $52 calls
- Higher premium
- Higher risk
- Requires monitoring
Role Reversal Principle
Key concept for traders:
Support Becomes Resistance
When support breaks:
- Previous buyers trapped
- Want to exit at breakeven
- Create selling pressure
- Old support = new resistance
Trade accordingly on retests.
Resistance Becomes Support
When resistance breaks:
- Previous sellers regret
- Want to buy on pullback
- Create buying pressure
- Old resistance = new support
Perfect for put selling on pullbacks.
Advanced S/R Concepts
Sophisticated applications:
Confluence Zones
Multiple factors align:
- Horizontal S/R
- Moving average
- Fibonacci level
- Trend line
- Round number
Strongest levels have confluence.
Virgin Levels
Untested support/resistance:
- First approach significant
- Often strong reaction
- Plan trades accordingly
- Watch for failure
Speed of Approach
Slow Grind: Often breaks Fast Move: Often bounces Spike: Usually reverses
Momentum matters at levels.
Common S/R Patterns
Recognizable formations:
Double/Triple Tops and Bottoms
Double Bottom at Support:
- Tests support twice
- Holds both times
- Bullish pattern
- Aggressive put selling
Triple Top at Resistance:
- Three failures
- Sellers defending
- Bearish pattern
- Aggressive call selling
Rectangles and Ranges
- Clear support below
- Clear resistance above
- Sell puts at support
- Sell calls at resistance
- Rinse and repeat
S/R Breakout Trading
When levels fail:
True Breakout Characteristics
- High volume
- Strong close beyond
- No immediate reversal
- Follow-through next day
Don’t fight true breakouts.
False Breakout Characteristics
- Low volume
- Weak close
- Quick reversal
- No follow-through
Perfect for selling premium.
Dynamic vs Static S/R
Understanding the difference:
Static (Horizontal)
- Fixed price levels
- Don’t change over time
- Traditional S/R
- Most reliable
Dynamic (Diagonal)
- Trend lines
- Moving averages
- Change over time
- Complementary tool
Use both for complete picture.
Common S/R Mistakes
Too Many Lines: Clutters thinking Forcing Levels: Seeing what isn’t there Ignoring Zones: Too precise No Confluence: Weak levels
Building an S/R System
Systematic approach:
Weekly Preparation
- Clear all old lines
- Identify major levels
- Note recent levels
- Mark confluence zones
- Plan option strikes
Daily Execution
- Check price vs levels
- Note approaching tests
- Prepare option trades
- Execute at extremes
- Manage by levels
Performance Tracking
- Win rate by level strength
- Best distance from S/R
- Breakout vs bounce ratio
- Optimize approach
Key Takeaways
Support and Resistance Lines:
- Upper indicators showing reversal levels
- Horizontal lines where price reacts
- Represent market psychology
- Guide strike selection
- Stronger with multiple touches
- Create zones not lines
- Foundation of technical analysis
Support and resistance lines are the option seller’s blueprint, showing exactly where the market has memory and where traders make decisions. These upper indicators remove guesswork from strike selection by providing objective levels with historical significance. Master S/R to transform hope-based trading into probability-based income generation. Remember: the market has memory, and support and resistance lines show you what it remembers.