Support & Resistance

Support and resistance analysis is one of the pillars of technical analysis, offering a look at the price levels where the market shows special sensitivity. These levels can be seen as psychological barriers for traders and investors and their correct identification and analysis can be the difference between a successful trade and a loss.

What are Support and Resistance?

  • Support: It is a price level at which, historically, an asset has tended not to fall below. It is considered as a kind of "floor" where the interest to buy is significantly higher than the pressure to sell. Supports can be identified by points where the price has touched multiple times without breaking below.
  • Resistance: Opposite to support, it is a level where the price tends to touch multiple times without surpassing it. It acts as a "barrier" where selling pressure outweighs buying pressure. It can be thought of as a "ceiling" that the price has difficulty breaking through.

Importance in Trading

Precisely identifying these levels can help traders establish entry and exit points in the market, place protective stops, and define profit-taking objectives. For example, a trader might consider buying at a recognized support level or selling at a resistance level.

Breakouts and Reversals

One of the most critical aspects of support and resistance analysis is the identification of breakouts and reversals.
  • Breakout: Occurs when the price crosses a support or resistance level and continues in that direction, indicating a potential trend change or continuation. Breakouts are often accompanied by high volume.
  • Reversal: If the price approaches a support or resistance level and then moves away, it could indicate that the market lacks sufficient momentum to break that level. It is a sign that the trend could change or pause.

Dynamic Support and Resistance

While traditional support and resistance levels are often horizontal, support and resistance can also be dynamic, adjusting to changing market conditions. Examples of this include moving averages or trend channels, where the slope can act as support or resistance.


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