Plotting the Support and Resistance Lines On the Line Chart or Candlestick Chart?
This is the question that many of you ask: Should I plot the support/resistance line on the high/low prices (candlesticks’ or bars’ high and low prices) or on the line chart (close price)?
As you know, a line chart is plotted based on the close price. Close price is the last market price within a time frame. For example, on the daily time frame, each candlestick or bar takes 24 hours to mature and close. During this 24 hours, the price goes up and down a lot, but there is always a high, low, open and close price.
Open price is the price that the market had when a new candlestick was opened.
High price is the highest level the price went while the candlestick was forming.
Low price is the lowest level the price went while the candlestick was forming.
Close price is the last price level that the candlestick closed at it.
Candlesticks and bar charts show all 4 prices. But line chart is plotted based on the close price.
Of course you can plot a line chart based on the open or close as well by adding a 1SMA to the chart and applying it to the open or close price.
Now, back to the question that whether you should plot the support/resistance lines on the low and high prices respectively, or you’d better to plot them on the close price?
Does it make any difference in your analysis result?
To which one does the price react and which one is more important in technical analysis?
The answer is, the close price is more important than the open, high and low prices, but the market also reacts to the support and resistance lines that plotted based on the low and high prices.
If a candlestick closes above a resistance line which is plotted based on the close price, it is usually a stronger buy signal or long trade setup. It is the same when a candlestick closes below a support line which is also plotted based on the close price.
The reason is that the party who is able to close the price at a certain level is a stronger.
The price can go up and down numerous times within a time frame, but the party that closes it at a certain level is the winner.
Therefore, the close price breakouts are more important than high and low price breakouts.
However, you should not ignore the high and low price breakouts too. Sometimes the market reacts to these prices strongly.
When you are waiting for a resistance breakout, you can plot the resistance line both on the close and high prices above the downtrend or ranging markets. Then you can wait for the market’s reactions to each line.
If a candlestick closes above the resistance line which is plotted on the close price, then you can trust the long trade setup if you are sure about the validity of the line you have plotted.
However, after breaking above the close price resistance line, the high price resistance line is usually on the way. It is possible that the price breaks above this line without paying any attention to it, or it is possible that it reacts to it.
It is the same with the support lines that you plot based on the close or low price below the downtrend or the sideways markets.
Therefore, limiting your risk to 2% and having a reasonable stop loss is always a must.
On the below chart, I have plotted the thicker green resistance line based on the close price, and the thinner green resistance line based on the high price. The red line is just a 1SMA (1 simple moving average) that shows the close price:
On the below chart, I have plotted the thicker green support line based on the close price, and the thinner green support line based on the high price. The red line is just a 1SMA (1 simple moving average) that shows the close price:
- Difference of High-Low and Close Prices in Plotting the Lines
- Market’s Reaction To Close And Low Prices Support Lines
Good luck 🙂