Support, Resistance & Price Action

Question 1 (14 marks)

(a) With $H=248.60$, $L=241.20$, $C=246.00$:

$P=\frac{248.60+241.20+246.00}{3}=\frac{735.80}{3}=245.27 \text{ (2 s.f. rounding: } 245.267\to 245.27)$

• $P = 245.27$ (2 marks)

$R_1=2P-L=2(245.2667)-241.20=490.5333-241.20=249.33 \text{ (1 mark)}$ $S_1=2P-H=490.5333-248.60=241.93 \text{ (1 mark)}$ $R_2=P+(H-L)=245.2667+(248.60-241.20)=245.2667+7.40=252.67 \text{ (2 marks)}$ $S_2=P-(H-L)=245.2667-7.40=237.87 \text{ (2 marks)}$

Why: Pivot averages the day's action; $R_1/S_1$ reflect the day off the pivot mirrored by the opposite extreme; $R_2/S_2$ extend by the full range.

(b) Open $247.10$ is above $P$ ($245.27$) but below $R_1$ ($249.33$). Rising, it encounters $R_1 = 249.33$ first as resistance. To signal further bullish momentum it must break above $R_2 = 252.67$. (3 marks: correct first resistance 1.5, correct next level 1.5)

(c) $R_2-S_2 = 252.67-237.87 = 14.80$. Previous range $H-L = 7.40$; twice that $= 14.80$. Claim verified. (1.5 marks) Algebraically: $R_2-S_2 = [P+(H-L)]-[P-(H-L)] = 2(H-L)$; the $P$ terms cancel, leaving exactly twice the range. (1.5 marks)

Question 2 (12 marks)

(a) Role reversal: once price breaks decisively above a former resistance (\180$), that level tends to act as support on subsequent pullbacks. Sellers who capped price there are now buyers/hold, and breakout buyers defend the level. The resistance "flips" into support. (3 marks)

(b) This event is a retest (successful retest/confirmation) — price returns to the broken level (\180.30 \approx $180$) and bounces. **(2 marks)** Two reasons waiting improves quality: (i) it **confirms** the breakout was genuine, filtering false breakouts; (ii) it offers a **tighter, defined stop** (just below$$180$) and better risk:reward entry. (2 marks)

(c) Close at \179.10$ (below the broken level) followed by further decline = a false breakout / failed breakout (fakeout/bull trap). (2 marks) It tells the trader the breakout lacked genuine buying pressure; the level held as resistance after all, trapping breakout longs, and the failed break often precedes a stronger move in the opposite direction (down). (3 marks)

Question 3 (12 marks)

(a) Swing high = Day 3, $54.9$: its high exceeds the highs of the surrounding days (Day 2 = 53.6, Day 4 = 53.1), forming a local peak. (3 marks) Swing low = Day 5, $49.6$: its low is lower than the lows of surrounding days (Day 4 = 51.0, Day 6 = 50.8), forming a local trough. (3 marks) (Full marks require day + price + justification via neighbouring candles.)

(b) Draw the supply zone as a band/rectangle around the swing high — from roughly the Day 3 high $54.9$ down to the open/base of the candle(s) that launched the drop (~$52.5$–$54.9$ area). (2 marks) Unlike a single horizontal resistance line, a supply zone is a range/area representing where institutional selling overwhelmed buying; it accounts for the fact that reactions occur over a price band, not one exact price. (2 marks)

(c) On a valid retest of the demand zone at \approx\49.6$, expect price to decelerate, halt its fall and bounce upward (buyers re-emerge), ideally with a rejection wick or bullish reaction confirming demand still exceeds supply. (2 marks)

Question 4 (12 marks)

(a) \100.00$is a **psychological round number** where traders cluster orders (take-profits, stops, round-lot buys). It acts as a magnet and often a **strong resistance**, so a breakout at$$99.80$may **stall or fail just below/at$$100$** as sell orders sit there. Breaking$$100$convincingly is often more meaningful than breaking$$99.80$. (4 marks: significance 2, effect on breakout 2)

(b) Spike to \100.40$then close at$$99.10$ (back inside range) = a false breakout (bull trap). (2 marks) Three confirmation criteria: (i) a close above the level, not just an intraday spike; (ii) above-average volume on the breakout; (iii) a successful retest that holds; (accept: follow-through candle, wide-range breakout candle, break of round number too). (3 marks, 1 each)

(c) Risk: orders clustered just above round numbers make that zone a stop-hunt / liquidity target — price can spike to trigger the buy-stop then reverse (fake breakout), filling the trader at the top before a drop. (2 marks) Modification: wait for a confirmed daily close above \100$ (or a retest hold) rather than a resting buy-stop; alternatively place the entry above a small buffer beyond the round number with volume confirmation. (1 mark)

Question 5 (10 marks)

(a) Yes — \74.50$remains valid support. The$$74.20$close is only a **minor/marginal penetration** (0.4$$76.00$**, showing buyers reasserted control. In price action, support is a zone, not a razor-thin line; a small overshoot with rejection and recovery is normal and even strengthens the level by clearing weak stops. (4 marks — position + justification. Award a well-argued "invalidated" answer partial credit only if it ignores the recovery; full marks favour the recovery argument.)

(b) Advantages (any 3): reacts in real time / no lag; works across all markets & timeframes; keeps charts clean & reduces conflicting signals; reflects actual supply/demand directly. (3 marks) Limitations (any 2): subjective / requires experience & discretion; harder to backtest/automate; can miss confirmation that indicators provide. (1 mark for 2)

(c) A level is stronger when it has (i) more touches/reactions (more times respected) and (ii) higher volume at those reactions; (accept: longer time held, cleaner rejections, confluence with round number/pivot). (2 marks)

[
  {"claim":"Pivot P = 245.27 (to 2dp)","code":"H,L,C=248.60,241.20,246.00\nP=(H+L+C)/3\nresult = round(P,2)==245.27"},
  {"claim":"R1 = 249.33 and S1 = 241.93","code":"H,L,C=248.60,241.20,246.00\nP=(H+L+C)/3\nR1=2*P-L\nS1=2*P-H\nresult = round(R1,2)==249.33 and round(S1,2)==241.93"},
  {"claim":"R2 = 252.67 and S2 = 237.87","code":"H,L,C=248.60,241.20,246.00\nP=(H+L+C)/3\nR2=P+(H-L)\nS2=P-(H-L)\nresult = round(R2,2)==252.67 and round(S2,2)==237.87"},
  {"claim":"R2 - S2 equals twice the daily range (14.80)","code":"H,L,C=248.60,241.20,246.00\nP=(H+L+C)/3\nR2=P+(H-L)\nS2=P-(H-L)\nresult = round(R2-S2,2)==round(2*(H-L),2)==14.80"}
]