Curriculum·S203 Chart Literacy and Evidence·about 31 min
Support, resistance, and supply/demand
By the end of this lesson you can
- →State the mechanisms by which a price level could matter, and which ones are testable
- →Report the evidence that support and resistance levels carry predictive content, with its limits
- →Distinguish a level that describes a trend interruption from a level that predicts a reversal
- →Mark levels by a rule that a second person could reproduce, and record them before the outcome
Sophomore · enrolled learners
This lesson opens with Support for Resistance, tested on intraday exchange rates.
- What happened
- Carol Osler's study published in the Federal Reserve Bank of New York's Economic Policy Review in 2000 examined support and resistance levels that six firms active in the foreign exchange market published to their customers between 1996 and 1998. Rather than constructing levels herself, which would have invited the ex post selection problem, she used the levels those firms had actually distributed, in advance, in writing. The analysis found strong evidence that the levels helped predict intraday trend interruptions. The predictive power varied across exchange rates and across firms, was stronger for dollar-yen and dollar-pound than for dollar-mark, and for most firms persisted at least five business days beyond publication.
- The decision point
- This is the result that makes the course honest, because it goes the other way. A technique that most rigorous testing has been unkind to was tested with the selection problem removed, on levels published before the outcome was known, and it carried real predictive content. The finding is narrow: trend interruptions, intraday, varying by firm and by rate. It is also real, and a course that reported only the failures would be misleading in the opposite direction.
What you will be able to answer
- →What is the difference between a trend interruption and a reversal?
- →Why did using firms' published levels matter methodologically?
- →Name the mechanisms by which a level could matter.
- →How should you mark a level?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.newyorkfed.org/research/staff_reports/sr42.html
- https://econpapers.repec.org/RePEc:fip:fednep:y:2000:i:jul:p:53-68:n:v.6no.2
- https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-6419.2007.00519.x
- https://www.coindesk.com/research/market-spotlight-the-19-billion-liquidation-that-shook-crypto
Confidence medium·Volatility low·Reviewed 2026-08-05·Owner unassigned
Contested
This finding is from foreign exchange markets between 1996 and 1998, at intraday horizons, using levels published by dealing firms. Whether it transfers to crypto, to other horizons, or to levels a retail reader draws themselves is unknown and should not be assumed. The methodological point about advance publication transfers regardless.
Predictive power varied substantially by firm and by currency pair in the original work. Presenting the result as though support and resistance uniformly work would misrepresent it; the finding is that some published levels carried content some of the time.