Traders and analysts chart the movements of stock prices over time to pi🦄npoint the support levels and resistance levels that indicate optimal t👍imes to buy and sell.

Support and resistance are two foundationaཧl concepts in technical analysis. Understanding what they a💝re and how they work is essential to correctly reading a price chart.

Technical analysis acknowledges that all stocks rise and fall in price constantly in response to 澳洲幸运5官方开奖结果体彩网:supply and demand. By zeroing in on movements within a timeframe, they seek to identify patterns. A stock's price💝 may maintain a support ꦓlevel, below which its price won't drop. It may also show a resistance level, at which buyers back off.

Like many concepts in technical analysis, the 𒀰explanation and rationale are relatively easy, but mastering their application can take ꦜyears of practice.

What Is Support?

In a 澳洲幸运5官方开奖结果体彩网:downtrend, prices fall because there is an excess of supply over demand. The lower prices go, the more attractive they become to those waiting on the sidelines to b💙uy the shares.

At some level,ꦉ demand that would have been slowly increasing will rise to thꦯe level where it matches supply. At this point, prices will stop falling. This is support.

Support can be a single price level on the chart or a 💮price zone. In any event, support is𓄧 an area on a price chart that shows buyers’ willingness to buy.

It is at this level that demand will usually overwhelm supply, causing the price decline to halt and reverse.

What Is Resistance?

Resistance is the opposite 🍒of support. Prices move up because there is more demand than supply. As the prices move higher, there will come a point when selling will overwhelm buying.

This happens for a variety of reasons. It could be that traders have determined that the prices are too high or have met their targets. It could be the reluctance of buyers to initiate new positions ꦯat such rich valuations.

It could be for any other number of reasons. But a technician can clearly see on a price chart a level at which supply begins to overwhelm dem🐈and. This is resistance. Like support, it can be a level or a zone.

Once an area or zone of support or resistance has been identified, those price levels can serve as potential entry or 澳洲幸运5官方开奖结果体彩网:exit points because, as the price reaches a point of previous support or resistance, it will do one of two things: bounce back away from the support or resistance level, or violate the price level and continue in its prior direction—until it hits the ❀next support or resistance level.

The timing of some trades is based on the belief that support and resistance zones will not be broken. Whether the price is halted by or breaks through t✃he support or resistance level, traders can bet on the direction of the price and quickly determine if they are correct.

If the price moves in the wrong direction (breaks through prior support or resistance levels), the position can be closed at a small loss. If the price moves in the right direction (respects prior support or resistance levels)⛦, the move may be substantial.

The Basics

Support and resistance can be found in all charting time periods; daily, weekly, and monthly. Tra🍷ders als🐭o find support and resistance in smaller time frames like one-minute and five-minute charts. But the longer the time period, the more significant the support or resistance.

To identify support or resistance, you have to look back at the chart to find a sign𒀰ificant pause in a price decline or rise. Then look forward to see whether a price halts or reverses as it approaches that level.

Many experienced traders will pay attention to past support or resistanc🦋e levels and place trades in anticipation of a future similar reaction at these levels.

Why It Works (Or Doesn't)

Technical analysis is not an exact ꦰscience, and sometimes the price will dip below support levels or reverse before it gets to the prior support level. The same is true for resistance: The price may reverse before it gets to the prior resistance level or break above it.

In any case, flexibility is required in interpreting these chart patterns. This is why support and resistance levels ar♏e sometimes zones rather than precise numbers.

There is nothing magical about these price levels. Itꦇ is simply that many market part✨icipants are acting off the same information and placing trades at similar levels.

Most experienced traders can share stories about how the price꧙ of an asset tends to halt when it gets to a certain level.

For 𒉰example, assume that Jim was holding a position in a stock from March to November and that he was expecting the value of the shares to increase.

Let’s imagine that Jim notices that the price fails to get above $39 several times over several months. Traders would call the pri🌳ce level near $39 a level of resistance.

As you can see 🦂from the chart below, resistance levels are also regarded as a ceiling because these price𒉰 levels represent areas where a rally runs out of gas.

Support levels are the flip side of the coin. Support refers to the price level on a chart at which equilibrium is reached.

Demand has increased to match supply. This causes the decline in the price of the as𓆏set to halt. The price has reached a floor.

As you can see from the chart below, the horizontal line below the price represents the price floor. You can see by the blue arrows underneath the vertical line that the price h🎃as touched this level four times in the past. This is the level where demand comes in, preventing further declines. This is support.

Trendlines

The examples above show ♔that a constant level prevents an asset’s price from moving higher or lower. This static baಞrrier is one of the most popular forms of support/resistance.

But the prices of financial assets generally trend upward or downward, so it is not uncommon to see these price barriers change over time. This is why 澳洲幸运5官方开奖结果体彩♛网:the concepts of trending and trendlines are important when learning about sup𝐆port and resistance.

When the market is trending to the upside, resistance levels are formed as the price action slows and starts to move back toward the 澳洲幸运5官方开奖结果体彩网:trendline. When the price is moving against the preva🐻iling trend, it is called a reaction.

Reactions can occur for a large variety of reasons, including profit-taking or near-term uncertainty for a particular issue or sector. The res🍌ulting price action unde🐷rgoes a plateau effect, or a slight drop-off in stock price, creating a short-term top.

Many traders will pay close attention to the price of a security as it falls toward the broader support of the trendline because, historically, this has been an area that has prevented the price of the 🎶asset from moving substantially lower.

For example, as you can see from the Newmont Corp. (NEM) chart below, aꦉ trendline can provide support for an asset for several years. In this case, notice how the trendline propped up the price of Newmont’s shares for an extended time.

On the other hand, when the market is trending to the downside, traders will watch for a series of declining peaks and will attempt to connect these peaks together with a tren🌼dline. When the price approaches the trendline, most traders will watch for the asset to encounter selling pressure and may consider entering a short position because this is an area that has pushed the price downward in the past.

To be a valid trendline, the price needs to touch the trendlines at least🐠 three times. Sometimes with stronger trendlines, the price will touch the trendline several times over longer time periods.

Uptrends and Downtrends

In an uptrend, the trendline is drawn🥃 below the price, while in a downtrend, the trendline is dꦍrawn above the price.

The support/resistance of an identified level, wheth🍰er disꦿcovered with a trendline or through any other method, is deemed to be stronger the more times that the price has historically been unable to move beyond it.

Many technical traders will use their identified support and resistance levels to choose strategic entry/exit points because these areas often represent the prices that are the most influential to an asset’s di෴rection.

Most traders are confident at these levels in the 澳洲幸运5官方开奖结果体彩网:underlying value of the asset, so the volume generally increases more than usual, making it much more difficult f🎃or traders tཧo continue driving the price higher or lower.

Round Numbers

Another common characteristic of support/resistance is that an asset’s price may have a difficult time moving beyond a round number, such as $50 or $10𒁏0 per share. Because people have an easier time visualizing round numbers, many inexperien🔯ced traders tend to buy or sell assets when the price is at a round number.

Also, many target prices or 澳洲幸运5官方开奖结果体彩网:stop orders set by either retail investors or large investme♛nt banks are placed at round price levels. Because so many orders are placed atꦯ the same level, these round numbers tend to act as strong price barriers.

For example, if all the clients of an investment bank put in sell orders at a suggested target of $55, it would take a large number of purchases to absorb thes🎐e sales and create a new level of resistance.

Moving Averages

Most technical traders incorporate the 澳洲幸运5官方开奖结果体彩网:po𝔉wer of various☂ technical indicators, such as moving averages, to aid in predicting future short-term mo🐽mentum. In fact, people who find it difficult to draw trendlines often will substitute them for moving av🦩erages.

As you can see from the chart below, a moving average is a constantly changing line that smooths out past price data, allowing for easier identificatio🅘n of support and resistanc🧸e. Notice how the price of the asset in the chart below finds support at the moving average when the trend is up, and how it acts as resistance when the trend is down.

Traders can use moving averages in a variety of ways, such as to anticipate moves to the up♔side when price lines cross above a key movi𒐪ng average, or to exit trades when the price drops below a moving average.

Regardleꦕss of how the moving average is used, it often creates automatic support and resistance levels. Most traders will experiment with different time periods in their moving averages so that they can find the one that works best for their trading time frame.

Other Indicators

In technical analysis, many indicators have been developed and are still being developed to identify bไarriers to future price action. Some indicators are plotted on price charts, while others are plotted above or below the price.

It takes practice and experience to learn to use them effectively. But regardless of how complex an indicator appears, its use and interpretation are often no different from that of indicators created🍸 through simpler methods like calculating moving averages and drawing trendlines.

For example, the 澳洲幸运5官方开奖结果体彩网:Fibonacci retracement is a favorite tool among many short-term traders because it clearly identifies levels of potential support/resistance. Notice in the chart below how the identified levels (dotted lines) are barriꦿers to the short-termꦰ direction of the price.

Trading Ranges

Support and resistance levels can often be relatively close. The stock price bounceಞs between the two levels, sometimes for a long time, without ever showing a long-term direction.

Some traders focus on exploiting these 澳洲幸运5官方开奖结果体彩网:sideways trends. One strategy is 🌳to place short trades as the price touches the upper trendline and long trades as the price reverses to touch the lower🥃 trendline.

This strategy is extremely risky. It is much better to 🦹wait to see in which direction the price will break out of the range and then place your trades in that di♏rection.

Support and Resistance Reversals

A previous support level will sometimes become a resistance l🔯evel when the price attempts to move back up. A resistance level can become a support level as the price temporarily falls back.

澳洲幸运5官方开奖结果体彩网:Price charts allow traders and investors to visually identi🦩fy areas of support and resistance, and they give clues regarding the significance of these price l🦩evels. More specifically, they look at:

Number of Touches

The more times that the price tests a support or resistance area, the m♏ore significant the level becomes. When prices keep bouncing off a support or resistance level, more buyers and sellers notice and will base trading decisions on these levels.

Preceding Price Move

Support and resistance zones are likely to be more significant when they ꦬare preceded by steep advances or declines.

For example, a fast, steep advance or uptrend will be met with more competition and enthusiasm and may be halted by a more significant resistance level than a slow, steady advance. A slow advance may not attract as much attention. This is a good example of 澳洲幸运5官方开奖结果体彩网:how m🐻ark♋et psychology drives technical indicators.

Volume at Certain Price Levels

The more buying and selling that has occurred at a particular 🧸price level, the stronger the support or resist♒ance level is likely to be. This is because traders and investors remember these price levels and are apt to use them again.

When strong activity occurs on high volume and the price drops, a lot of selling will likely occur when the price returns to that level, since people are far more comfortable closing out a trade at the 澳洲幸运5官方开奖结果体彩网:breakeven point than at a loss.

Time

Support and resistance zonꦅes seen in longer time frame charts such as weekly or monthly charts are often more significant than those seen in shorter time frame charts such as the one-minute or five-minute char๊t.

The Bottom Line

Support and resistance levels are key concepts that form the basis of a wide variety of technical analysis tools. The basics of support and resistance consist of a support level, which can be thought of as the floor under price, and a resistance le𝓡vel, which can be thought of as the ceiling above price. Prices fall and test the support level, which will either hold, and the price will reverse to the upside, or be violated, and the price will drop through the support and likely continue lower to the next support level.