Support and resistance are fundamental concepts in technical analysis representing price levels where buying or selling pressure is concentrated. They are perhaps the most universally used tools across all trading strategies.
Support
A price level where buying demand is strong enough to halt or reverse a decline. It forms because buyers remember past prices where they found value, creating a 'floor.' The more times a support level is tested without breaking, the stronger it is considered β but each test also weakens it slightly.
Resistance
A price level where selling pressure is sufficient to halt or reverse an advance. It forms because sellers remember past prices where they found their positions overvalued, creating a 'ceiling.'
Role Reversal Principle
When a support level is broken, it often becomes resistance (former buyers are now looking to sell at breakeven). When resistance is broken, it often becomes support (former sellers are now buyers). This is one of the most reliable patterns in technical analysis.
Methods of Identification
Key Nuance
Support and resistance are zones, not exact prices. A brief penetration ('spike through') that closes back above/below the level often strengthens it.