Support and Resistance

Support and resistance are price levels where a stock has repeatedly struggled to fall below or rise above. Support acts like a floor where buyers tend to step in; resistance acts like a ceiling where sellers tend to take over. They form because traders remember these levels and act around them, which makes them partly self-fulfilling.

Traders use these levels in a few ways:

• Bounces: price approaching support is a spot buyers watch, while price nearing resistance is where rallies often stall.
• Breakouts: when price decisively breaks a level on strong volume, that level often flips role, old resistance becomes new support and vice versa.
• Strength: a level tested several times carries more weight than one touched once, though every test also slightly wears it down.
• Zones, not lines: treat support and resistance as areas rather than exact prices. Expecting a level to hold to the penny is a common mistake.

Say a stock keeps stalling near $100 over several months, marking resistance, while dips keep finding buyers near $90, marking support. A trader might expect choppy moves between the two until price breaks out, at which point a clean push above $100 could turn $100 into the new floor.