Support and Resistance Explained

7 min read

Support and resistance are among the first concepts most traders learn, describing price levels where an instrument has previously paused, reversed, or struggled to break through.

Despite being one of the simplest tools in technical analysis, support and resistance remain one of the most widely used, largely because so many other tools and patterns are built directly on top of them.

What creates a support or resistance level

These levels often form where a large number of market participants previously made decisions - a prior high where sellers took profit, or a prior low where buyers stepped in. When price returns to that level, some of that same buying or selling interest can resurface.

This is why levels tied to particularly heavy past trading activity, such as a major prior high or low, tend to be watched more closely than a level with little history behind it.

• Prior high/low: A past turning point where meaningful buying or selling previously occurred.
• Resurfacing interest: The same buying or selling interest can reappear when price revisits the level.
• Significance varies: A level with heavier trading history tends to be watched more closely.

Support becoming resistance, and vice versa

A well-known pattern is a broken support level acting as resistance on a later retest, and a broken resistance level acting as support - the reasoning being that participants who missed the original move often use the retest as a new entry opportunity in the direction of the breakout.

This 'role reversal' pattern is one of the most commonly cited concepts in technical analysis, and worth watching for whenever a well-established level is broken.

• Role reversal: A broken support can act as resistance, and a broken resistance as support.
• Retest: Price returning to a broken level to test whether it now holds in the new direction.
• Missed-move entries: Participants who missed the breakout often use the retest as a new entry.

Why levels are zones, not exact lines

In practice, support and resistance behave more like zones than precise lines, since different participants define the level slightly differently.

Treating them as an approximate area, and combining them with other signals, tends to be more reliable than expecting a price to react at one exact number.

• Zone, not a line: Support and resistance behave more like an approximate area than an exact price.
• Subjective definition: Different participants can define the precise level slightly differently.
• Combine with other signals: Treating a zone alongside other tools tends to be more reliable than alone.