Stödmotstånd

Stödmotstånd, often translated as support resistance, is a fundamental concept in technical analysis of financial markets. It refers to price levels where a trend is expected to pause or reverse. Support refers to a price level where a downtrend is expected to pause due to a concentration of demand, while resistance refers to a price level where an uptrend is expected to pause due to a concentration of supply. These levels are identified by examining historical price charts, looking for areas where prices have previously stopped falling (support) or stopped rising (resistance).

The theory behind support and resistance is that at these levels, market psychology shifts. At a support level, potential buyers see value and step in, halting or reversing the decline. At a resistance level, existing holders may see an opportunity to sell at a profit, or new sellers may enter, overwhelming the buying pressure. These levels are not always exact price points but can be zones or ranges.

When a support level is decisively broken, it often becomes a resistance level for future price movements, and vice versa. This is known as polarity or role reversal. Traders use support and resistance levels to make decisions about entering or exiting trades, setting stop-loss orders, and identifying potential trading opportunities. The strength of a support or resistance level is often judged by how many times it has been tested and how significant the price reaction has been at that level.