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Support and Resistance

Technical analysts use support and resistance levels to identify price points on a chart where the probabilities favor a pause or reversal of a prevailing trend.

The concepts of support and resistance are some of the most fundamental topics related to the technical analysis of financial markets. They apply to essentially any market, whether that’s stocks, forex, gold, or cryptocurrencies.

While they’re simple concepts to understand, they’re actually quite difficult to master. Identifying them can be entirely subjective, they’ll work differently in changing market conditions, and you’ll need to understand their different types.

On the most fundamental level, support and resistance are simple concepts. The price finds a level that it’s unable to break through, with this level acting as a barrier of some sort. In the case of support, price finds a “floor,” while in the case of resistance, it finds a “ceiling.” Basically, you could think of support as a zone of demand and resistance as a zone of supply.

Unlike the rational economic actors portrayed by financial models, real human traders and investors are emotional, make cognitive errors, and fall back on heuristics or shortcuts. If people were rational, support and resistance levels wouldn’t work in practice!

 

Money is a terrible master but an excellent servant.

P. T. BarnumAmerican showman, businessman, and politician

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