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Support & Resistance
Support and resistance are core components of trend analysis. In any trend—up, down, or sideways—the highest point of a price move is considered resistance. When price repeatedly stalls near this level, it forms a resistance zone, where selling pressure outweighs buying and prevents further upward movement.
Conversely, the lowest point of a price move defines support. A support zone develops when buying demand is strong enough to halt or potentially reverse a downtrend, causing prices to stabilize or move higher again.
Support & Resistance Reversal
Reversals in price direction are crucial in trading because trends are expected to continue until signs of reversal appear. Support and resistance are key concepts that help identify where price might reverse.
- Support is a price level where buying is strong enough to halt a decline
- Resistance is a level where selling pressure stops a price rise.
These levels reflect collective investor psychology and can be drawn as horizontal or sloped trendlines. A major principle is change in polarity: once support is broken, it becomes resistance, and once resistance is broken, it becomes support. Support represents demand zones where investors find value, and resistance represents supply zones where investors hesitate to buy.
Market Psychology Behind Trend Reversals
Support and resistance levels matter partly because traders remember previous price zones, giving these areas psychological importance. Another reason is mathematical: when price stays in a range for a long time, trading volume builds up, creating strong cost bases for both buyers and sellers. These factors make the range more significant. Identifying support and resistance is mainly a visual process, as no precise formula can define these levels—minor breakouts or violations should be expected.
