HOW TO DETERMINE THE SIGNIFICANCE OF SUPPORT OR RESISTANCE ZONES

1. The more activity in a zone, the higher its significance
Here everything is clear to everyone. If a whole bunch of people are buying or selling at a particular price level, it means that this level is important for them. Very important. Not only that, but our psychology is built in such a way that:
We tend to remember events that are important to us.
Buyers like to break-even if the price returned to level after buying. Sellers, on the other hand, may buy low in advance and remember that prices were previously hanging out at that level of resistance. Respectively, this is the level they will be looking at to lock in their profits.

2. The greater the speed and duration of the previous movement, the better the levels
When price is trying to break through resistance levels, it is similar to the action of a man breaking through a front door. If it is accelerated from a distance let’s say of 10 meters, the momentum of its movement will be very strong and the flimsy door obviously will not resist. If he is speeding up from the nearest store, far away, he will run up to the door and collapse on the threshold without any strength.
The door stays the same! Nothing has changed. Its qualities, its "resistance" remain the same. What has changed is the speed of the one who wanted to get in.
The same principle is valid for markets, which are a reflection of human psychology. A long, slow, long climb is a long run from the store, and the level of resistance will be a solid door. And the longer each price run, the less sturdy the door (support or resistance level) will need to hold.

Let's take a look at the CADJPY chart. As we can see, the price falls to the low and then begins to accelerate. However, the decline begins, extremely steep, prolonged and sharp. As a result, by the time it reaches the support level, the price is completely exhausted, and the sellers can not break through that door any lower.


3. Evaluate the past time
The third rule for evaluating the potential of support and resistance levels is to examine how much time has elapsed between the formation of the previous level and the current one. It depends on the characteristics of the selected market, as such.
For example, a support level that is 6 months old is much more relevant than a 10- or 20-year level. Although, of course, time after time it is amazing how much the same support or resistance level can be "working", time after time, even if years and generations pass.

Bottom line
Support and resistance are simply areas of concentration of supply and demand that allow you to slow the price, at least temporarily.
They are not a buy or sell signal. They are zones where a smart trader would expect a reversal. These zones should always be complemented with other tools.
The significance of support and resistance zones depends on the activity of market participants at these levels, the speed and duration of movement, and how much time has passed since the previous zone was formed.