Support and Resistance
Price levels where a stock tends to stop declining (support) or stop rising (resistance), based on historical trading patterns.
Support and resistance are price levels where a stock tends to stop falling (support) or stop rising (resistance) based on historical trading patterns. Support acts like a floor—a level where buyers step in and prevent further declines. Resistance acts like a ceiling—a level where sellers step in and prevent further rallies.
Example
Apple (AAPL) has traded around $150 multiple times over the past year and bounced up each time it approached that level. $150 becomes support. If AAPL traded as high as $180 several times but pulled back each time, $180 becomes resistance.
Google (GOOGL) has a support level at $140 because it has bounced off that price four times in the past six months. When GOOGL approaches $140, traders anticipate a bounce and buy, providing buying pressure that prevents further declines.
How to Interpret It
- Support: A price level where the stock has historically bounced up. Traders buy near support expecting a bounce. The more times a stock bounces off a level, the stronger that support becomes.
- Resistance: A price level where the stock has historically pulled back. Traders sell near resistance expecting a pullback. Multiple rejections at the same level strengthen resistance.
- Broken support becomes resistance: When a stock breaks below support on high volume, that old support level often becomes new resistance on the way up. Former support now acts as a ceiling.
- Broken resistance becomes support: When a stock breaks above resistance, that old resistance often becomes new support on pullbacks.
- Psychology: Round numbers like $100, $150, $200 often act as psychological support and resistance because traders focus on them.
Limitations
- Support and resistance are not guarantee—they're probability zones where reversals are more likely, not certain.
- They rely on historical price action and assume past patterns repeat, which doesn't always happen.
- Major news, earnings surprises, or market crashes can obliterate support and resistance levels.
- Different time frames produce different support and resistance levels (daily vs. weekly charts).
- Over-reliance on support and resistance can cause traders to miss breakout opportunities when stocks surge past key levels.
- Support and resistance are subjective—different traders may identify different levels from the same chart.
Related Terms
- Pivot Points — calculated support and resistance levels
- Technical Analysis — price-based analysis strategy
- Volume — confirms breakouts above resistance or below support
- Breakout — when price moves decisively beyond support or resistance
Frequently Asked Questions
How do traders identify support and resistance levels?
Traders look at historical price charts for levels where the stock repeatedly bounced up (support) or bounced down (resistance). Round numbers like $100 or $150 also act as psychological support and resistance.
Does support and resistance ever fail?
Yes. If a stock breaks decisively below a support level on high volume, that support level breaks and often becomes new resistance on the bounce up. News, earnings, or major events can shatter support and resistance levels.
Is support and resistance technical analysis or fundamental analysis?
Support and resistance is pure technical analysis—it's based on price patterns and psychology, not on company earnings or financial metrics. Fundamental investors often ignore these levels entirely.