Support, Resistance & Price Action

Question 1 (12 marks)

(a) Formula (1 mark), computation (1 mark): $P = \frac{H + L + C}{3} = \frac{148 + 132 + 140}{3} = \frac{420}{3} = 140.00$

(b) Each formula + value = 1.5 marks (×4 = 6): $R1 = 2P - L = 2(140) - 132 = 148.00$ $S1 = 2P - H = 2(140) - 148 = 132.00$ $R2 = P + (H - L) = 140 + 16 = 156.00$ $S2 = P - (H - L) = 140 - 16 = 124.00$

Marking: correct formula (0.75) + correct value (0.75) each.

(c) (4 marks):

• $R1 = 2P - L$ and $S1 = 2P - H$ are reflections of the low and high across the pivot: $R1 - P = P - L$ and $P - S1 = H - P$, i.e. equal distances above/below $P$. (2)
• The pivot represents the "average traded price" / consensus value of the prior session; trading above it = intraday bullish bias, below = bearish bias. It acts as the intraday equilibrium/decision point. (2)

Question 2 (10 marks)

(a) (4 marks):

• Once a level breaks, participants who traded against the move are trapped (e.g. sellers at old resistance now in loss). (2)
• On a pullback, these trapped traders exit at breakeven (creating buying) while breakout traders add; supply exhausted at the old level now becomes demand → resistance becomes support. Symmetric logic for broken support becoming resistance. (2)

(b) (6 marks — 2 each):

• Breakout: price moves from ≤$50 up through to$53 → conviction the level is broken; trader watches for follow-through. (2)
• Retest: pullback to $50.10 (near old resistance$50) tests whether it now holds as support. (2)
• Confirmation: it holds ($50.10 >$50, no close back below) and rallies → role reversal confirmed; higher-probability long entry with stop below $50. (2)

Question 3 (12 marks)

(a) (8 marks) — example solution:

def classify_breakout(candles, R):
    # Rules:
    # - A candle "pierces" R if its high > R.
    # - Confirmed breakout: a candle CLOSES above R.
    # - False breakout: high pierces R but close falls back <= R.
    # - No break: high never exceeds R.
    pierced = False
    for c in candles:
        if c['high'] > R:
            pierced = True
            if c['close'] > R:
                return "breakout"          # closed beyond -> confirmed
    if pierced:
        return "false_breakout"            # wicked above but never closed above
    return "no_break"

Marking: clear stated rules (2); loop/pierce detection (2); breakout condition on close (2); false-breakout & no-break returns (2). Any consistent rule set earns full marks.

(b) (4 marks, 2 each):

• Liquidity grab / stop hunt: larger players push price beyond the level to trigger stop-loss and breakout orders, then reverse. (2)
• Lack of follow-through volume: insufficient real demand/supply to sustain the move; price returns inside the range. (2)

Question 4 (10 marks)

(a) (3 marks):

• A swing high at index $i$: $high[i] > high[i-k]$ and $high[i] > high[i+k]$ for all $k=1..n$. (1.5)
• A swing low at index $i$: $low[i] < low[i-k]$ and $low[i] < low[i+k]$ for all $k=1..n$. (1.5)

(b) (5 marks):

def find_swing_highs(highs, n):
    swings = []
    for i in range(n, len(highs) - n):
        left  = all(highs[i] > highs[i-k] for k in range(1, n+1))
        right = all(highs[i] > highs[i+k] for k in range(1, n+1))
        if left and right:
            swings.append(i)
    return swings

Marking: correct loop bounds n .. len-n (2); left comparison (1); right comparison (1); collect index (1).

(c) (2 marks): The last $n$ bars lack the required $n$ future bars to their right, so the right-side condition cannot be evaluated yet — a swing point is only confirmable in hindsight.

Question 5 (8 marks)

(a) (4 marks, 2 each):

• Anchoring / cognitive salience: round numbers are memorable reference prices; traders cluster orders and targets there. (2)
• Order clustering: institutions place limit/stop and options strike-related orders at round levels, creating real supply/demand and self-fulfilling reactions. (2)

(b) (4 marks):

• A line is a single price; a demand zone is a price range (e.g. the base a strong rally launched from). (2)
• Zones are preferred because exact turning prices rarely repeat; a zone accommodates noise/wicks, reduces premature stop-outs, and better reflects where accumulation actually occurred. (2)

Question 6 (8 marks)

Award ~2.5 per pillar (i)–(iii) + 0.5 coherence:

• (i) Trend via swing structure: higher highs + higher lows = uptrend; lower highs + lower lows = downtrend; ranging = flat swings. (≈2.5)
• (ii) S/R via horizontal levels: mark prior swing highs/lows and areas of repeated reaction; these become S/R and can role-reverse. (≈2.5)
• (iii) Timing via candle behaviour at levels: rejection wicks, engulfing candles, or holds at a level signal entries; breakout+retest confirms; stops placed beyond the level. (≈2.5)
• Coherent integration of all three without indicators. (0.5)

[
  {"claim":"Pivot P = 140","code":"H,L,C=148,132,140; P=(H+L+C)/3; result=(P==140)"},
  {"claim":"R1=148, S1=132","code":"H,L,C=148,132,140; P=(H+L+C)/3; R1=2*P-L; S1=2*P-H; result=(R1==148 and S1==132)"},
  {"claim":"R2=156, S2=124","code":"H,L,C=148,132,140; P=(H+L+C)/3; R2=P+(H-L); S2=P-(H-L); result=(R2==156 and S2==124)"},
  {"claim":"R1 and S1 are equidistant from P","code":"H,L,C=148,132,140; P=(H+L+C)/3; R1=2*P-L; S1=2*P-H; result=((R1-P)==(P-L) and (P-S1)==(H-P))"}
]