Support and resistance

Support and resistance are price levels where the balance between buyers and sellers has repeatedly shifted.

The definitions

• Support — a level where falling price has tended to stop and bounce, because buyers step in. Think of it as a floor.
• Resistance — a level where rising price has tended to stall and turn down, because sellers step in. Think of it as a ceiling.

Why levels form

A level matters because people remember it. Buyers who missed a bounce wait to buy the next visit; sellers trapped at a high wait to exit at break-even. That clustered memory creates the reaction.

How to use them

• Levels are zones, not razor-thin lines. Draw a band, not a single price.
• The more touches, the more significant — until it breaks.
• Roles flip on a break. Broken resistance often becomes support, and broken support often becomes resistance. This polarity flip is one of the most useful ideas in charting.

Limitations

Levels are self-fulfilling up to a point and then fail without warning, especially on news. A clean break through a watched level can trigger a cascade of stop orders, so the "obvious" level is also where many traders get hurt. Confirm a hold or a break — do not assume it.