Published on: February 28, 2025
Support and resistance levels are fundamental concepts in trading and investing. These levels are often seen as key indicators of where price movement may reverse or stall. The ability to identify these levels objectively and logically can significantly enhance a trader’s decision-making process. One effective approach to achieving this is by using Noiseless Charts, such as Point & Figure and Renko charts, which simplify the chart patterns and remove the market “noise” for a clearer view of price action.
The Origin of Support and Resistance
One of the most effective ways to identify support or resistance in a market is by looking at the origin of a momentum move. A momentum move is a significant price movement in one direction that typically marks the beginning of a trend. This starting point becomes a logical place to watch for support or resistance as the market may return to this level before continuing in the same direction or reversing.
In point-and-figure charts, we can identify momentum moves objectively and structuredly. The TradePoint and Zone platforms offer a clear definition of a momentum move in the form of anAnchor Column, which is essential for marking support and resistance levels.
What is an Anchor Column?
In the context of Point & Figure charts, a momentum move is called an Anchor Column. An Anchor Column is any column of X’s or O’s in a Point & Figure chart that consists of 15 or more boxes. This threshold of 15 boxes defines a significant move in the market, giving traders a clear signal of a momentum-driven shift.
The concept of Anchor Columns can be customised, so users have the flexibility to change the default 15-box setting to suit their trading style or the timeframe they are analysing. Whether you’re looking at short-term or long-term trends, this method allows for an adaptable and customisable approach to identifying support and resistance levels.
Identifying Anchor Support and Resistance
Once the Anchor Column has been identified, it’s time to mark the corresponding support and resistance levels.
- Anchor Support: The low of a bullish Anchor Column represents a key support level. This is the price level where buying interest started and can act as a floor for the price to bounce back from.
- Anchor Resistance: The high of a bearish Anchor Column marks a potential resistance level. This is where selling pressure started, and the price may struggle to break through this level again.
In TradePoint & Rzone, the platform automatically identifies bullish and bearish columns, drawing horizontal lines at the highs and lows of these Anchor Columns. These lines represent the likely support and resistance levels that the price will respect in the future.
If the price is confined within these Anchor Support and Anchor Resistance levels, traders may expect range-bound price action. In other words, the market could continue oscillating between these levels until either the support or resistance is breached.
Using Anchor Lines as Target Zones
Another useful application of Anchor Support and Anchor Resistance lines is in setting target zones, especially for intraday traders. These lines can be used as exit points to close out positions when the price reaches one of these levels. If a trader is long and the price reaches the Anchor Resistance line, they may consider it a good point to exit the trade.
Anchor Lines as Trend Reversal Signals
Beyond identifying support and resistance, Anchor Support and Anchor Resistance lines can also signal potential trend reversals.
- Breaching an Anchor Support Line: If the price breaks below a bullish Anchor Support line, it could potentially reverse the current bullish trend. This breach indicates that the buying interest has been exhausted, and the market may start moving lower.
- Breaching an Anchor Resistance Line: Similarly, if the price breaks above a bearish Anchor Resistance line, it could signal a potential reversal of the current bearish trend, indicating that the market may start moving higher.
These trend reversals, combined with chart patterns such as bullish or bearish formations, can be an effective trading strategy. By looking for follow-through after the breach of an Anchor Line, traders can align their positions with the new market trend.
Risk Management with Anchor Column
While P&F charts and Anchor Support/Resistance lines are powerful tools for identifying market levels, it is crucial to always consider risk management. Even though these tools can help with stock selection, it’s essential to manage your position size, stop-loss levels, and risk-to-reward ratios to protect your capital in case the market moves against you.
