Support and resistance are observable price levels — not lines drawn arbitrarily, but zones where historical buying or selling pressure has repeatedly emerged.
The Mechanics
Support is a price level where a stock has historically stopped falling, as buying demand emerges. Resistance is the inverse — a level where selling pressure has repeatedly capped further gains. Once a resistance level is decisively broken, it often becomes a new support level going forward (and vice versa) — a well-documented pattern called "role reversal," reflecting a shift in trader psychology once the old ceiling or floor is breached.
Practically, this means: A breakout above resistance on unusually low trading volume is a weaker signal than the same breakout on high volume — low-volume breakouts fail (fall back below the level) far more often, since they don't reflect broad conviction behind the move.
Someone Watching a Stock Approach a Known Resistance Level: Watch the volume on any breakout attempt — that's a genuine confirmation signal worth waiting for.
Someone Using Support Levels to Time an Entry: Understand support can real-world break — a stop-loss below the level is a reasonable, common safeguard.
Use Support and Resistance the Way
- Identify historical levels using multiple prior touches, not a single point.
- Watch volume on any breakout attempt for confirmation.
- Expect broken resistance to often become new support, and plan accordingly.
See trend lines explained for a related, dynamic version of this concept.
