Learn -- lesson 2 of 10
Support and resistance
What you'll learn: why price tends to pause or reverse at certain levels, and why those levels are zones, not exact lines.
Support is a price area where buying pressure has repeatedly shown up in the past, slowing or reversing a decline. Resistance is the mirror image -- a price area where selling pressure has repeatedly shown up, slowing or reversing an advance. Neither is magic: they exist because a lot of market participants remember the same past price and act around it -- some took profit there before, some got trapped there before, some simply have a standing order waiting at a round number.
The more times price has reacted at roughly the same level, the more traders tend to notice it, which can become a bit self-fulfilling -- but that also means a level that has been tested many times can eventually give way, sometimes sharply, once enough people are positioned around it.
Support and resistance are not fixed forever. Once broken, a former resistance level often becomes support on the way back up, and a former support level often becomes resistance on the way back down -- one of the oldest, most reliable-feeling patterns in price charts, and also one of the easiest to see clearly only after the fact.
How to read it
- Look for price areas where the market has reversed more than once, not a single touch.
- Treat these as zones, a range of prices, rather than one exact number -- markets rarely respect a level to the exact dollar.
- A break of a well-tested level, especially with a strong candle through it, often carries more weight in traders' minds than a break of a level tested only once.
- Round numbers (like $100,000) often act as informal support or resistance simply because many people place orders there.
Common beginner mistakes
- Drawing a level as a single hairline and expecting price to respect it to the exact price -- treat it as a zone instead.
- Assuming a level will hold forever. Every support eventually breaks under enough pressure; the question is only when and how sharply.
- Confusing 'tested many times' with 'guaranteed to hold' -- a level that has survived five tests can still fail on the sixth.