supportresistance

Support and resistance are fundamental concepts in technical analysis describing price levels at which a financial instrument tends to pause, stall, or reverse direction. Support is viewed as a price floor where demand is thought to increase enough to absorb selling pressure, preventing prices from falling further. Resistance is a price ceiling where supply or selling pressure tends to halt advances. These levels are not fixed; they can shift as market conditions change and as new information enters the market.

Traders identify support and resistance on price charts in several ways. Horizontal levels are drawn at significant swing lows (support) and swing highs (resistance). Dynamic forms include trendlines, moving averages, and other indicators that adapt with price action. Psychological rounds and commonly watched technical tools such as Fibonacci retracements or prior highs and lows often reinforce these levels. The idea is that collective trader behavior creates areas where buying or selling interest increases.

In practice, price often tests these levels. Near support, traders may look for price to bounce and move higher, while near resistance they may anticipate a pullback. Breakouts occur when price closes beyond a resistance or below a support level, sometimes accompanied by increased volume, leading to a new trend. Retests after a breakout are common, with traders watching for confirmation before entering.

Limitations include false breakouts and varying reliability across timeframes and markets. Levels can be breached, and past performance does not guarantee future results. Hence, support and resistance are typically used in conjunction with other analysis tools and risk management practices.