SUPPORT & RESISTANCE
Plain English
Support is a price floor where buyers tend to step in. Resistance is a price ceiling where sellers tend to appear. These levels exist because traders remember past prices and act on those memories. When support breaks, it often becomes resistance, and vice versa.
Going deeper
Support levels form at prices where buying demand historically overcomes selling pressure, preventing further decline. Resistance levels form where selling pressure overcomes buying demand, preventing further advance. These levels develop because of psychological price points (round numbers), prior highs/lows, moving averages, and institutional order flows. The more times a level is tested, the more significant it becomes. A breakout above resistance or breakdown below support, especially on high volume, often leads to a sustained move. Broken support becomes resistance and vice versa — this role reversal is a key concept.
Examples
Support Bounce
A stock drops to $50 three times over six months, bouncing higher each time. $50 is strong support. Traders buy near $50 expecting another bounce, creating a self-fulfilling prophecy.
Resistance Breakout
A stock has failed to break above $100 four times. On the fifth attempt, it surges through $100 on 3x normal volume. This breakout signals a potential new uptrend, and the old $100 resistance becomes new support.