Support and Resistance Levels

What Is Support?

Support is a price level where buying interest is strong enough to prevent further decline. When price falls to a support level, demand tends to increase — buyers step in, and the price bounces upward. The more times a level has held as support, the stronger it's considered to be.

Think of support as a floor. Price can break through eventually, but it takes significant selling pressure to do so.

What Is Resistance?

Resistance is the opposite — a price level where selling pressure is strong enough to prevent further advance. When price rises to resistance, sellers step in, and the price retreats. Like support, resistance levels strengthen each time they're tested.

Think of resistance as a ceiling. Price pushes up against it repeatedly before eventually breaking through — or turning back down.

How to Identify These Levels

Look for price levels where the market has previously reversed multiple times. Horizontal lines drawn across previous highs and lows are the simplest method. Round numbers (1.3000, £50, 4000 on the S&P) often act as psychological support and resistance because traders cluster orders around them.

Previous support that breaks becomes new resistance, and previous resistance that breaks becomes new support. This concept — called polarity — is one of the most useful principles in technical analysis.

Trading Around These Levels

There are two main approaches: bounce trading (buying at support, selling at resistance) and breakout trading (entering when price breaks decisively through a level). Both work, but they require different setups, confirmations, and risk management approaches.

Always wait for confirmation before acting. Price touching a level isn't the same as price reacting to it. Watch for candlestick signals, volume changes, or momentum shifts at the level.