Support & Resistance
Key Takeaways
- 01.Support is a buying floor; Resistance is a selling ceiling.
- 02.Once a level is breached, its role frequently reverses: former support becomes new resistance, and former resistance becomes new support.
- 03.These are zones or areas of interest rather than exact, single-penny lines.
- 04.A level becomes stronger and more reliable the more times it is tested without breaking.
Why it matters
Support and resistance form the foundation of almost all technical analysis and trading strategies. They allow traders to identify high-probability entry points (buying near support, selling near resistance) and to place logical stop-losses just outside the levels to limit risk.
When it matters
They are relevant across all timeframes and asset classes, particularly in liquid markets where standard auction dynamics apply.
Horizontal lines drawn across multiple price peaks (resistance ceiling) and troughs (support floor) on a chart.
Click and draw horizontal support and resistance lines across key swing points on the chart.
Common Mistakes
Treating levels as exact price numbers
Placing orders exactly on a support line often results in missed trades if the price bounces slightly early, or stopped-out trades if the price temporarily spikes through the line. It is better to treat them as support and resistance 'zones' with a buffer.
Assuming a level will hold indefinitely
Every time support is tested, the buy orders clustered there are filled. If support is tested repeatedly in a short period, it becomes weaker, not stronger, as the available demand is consumed, eventually leading to a breakdown.
📖 Real-World Example: Classic role reversal
A stock struggled to clear resistance at $100 for six months, pulling back every time it touched it. Eventually, on positive earnings, it broke above $100 on heavy volume. A month later, it pulled back to $100, where buyers stepped in and drove it higher, confirming that the former resistance had become new support.