Trading Mistakes to Avoid – Ignoring Major Levels

One of the fundamental principles of technical analysis is the concept of support and resistance levels. These are price levels where large numbers of buyers or sellers have historically been active. The more often these levels hold, the stronger they are considered to be. When a level breaks with strong volume, the price can make significant moves in the direction of the breakout.

Ignoring or being unaware of major support and resistance levels is often a costly mistake that many traders make. Regardless of your particular trading system, getting into a trade without knowing where support and resistance levels is like trying to drive through a brick wall. In most cases, that wall is going to stop you, at least temporarily.

Sure, support and resistance level break eventually, but the odds of that happening are stacked against you. Most experienced traders will wait until the break with volume, or a low volume retest of the break, before taking a position. Those that want to anticipate the break will do so with smaller sized positions to manage their increased risk.

If you’re day trading on a lower timeframe chart, it’s not enough to identify support and resistance levels on that chart alone. You also need to consider S&R levels on higher timeframes, as they tend to carry more weight. For example, imagine you’re trading TSLA on a 1-minute chart. The stock is at $412, and you spot a clear support level at $410. You decide to buy shares at $412 (or call options) and set your stop at $409, just below support. This trade seems well-structured—until you check the 15-minute chart. There, you notice a strong support level at $407. Had you considered this higher timeframe, you might have placed your stop below $407 or waited for the stock to approach that level before entering the trade. Instead, by focusing solely on the 1-minute chart, you miss the bigger picture, get stopped out at $409, and watch the stock bounce off the $407 support.

You also should consider identifying Fibonacci levels and pivot points, which often act as support and resistance levels on all timeframes. These levels are based on past price action and mathematical calculation that are explained in detail by Professor Google. For our purposes, it’s enough to know that traders watch these levels and tend to respect them, making them important areas of support and resistance. Ignoring them can prove costly.

One of the most frustrating situations you can get your self into is entering a long position and then noticing you did so just below VWAP or another major level that will likely act as resistance. You might still come out a winner, because resistance level do break, but if you’re trading short dated options, Theta burn could kill you while you wait. You’d much rather enter the position just above VWAP with your stop below it.

Bottom Line

Before you enter a position make sure you are aware of the major levels that could act as support and resistance.