Why Is Support & Resistance Analysis So Important To Traders’ Craft? Learn Now

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Support and Resistance is one of the most important and fundamental parts of technical analysis:

  • Support: Typically expected that prices should rise after touching support.
  • Resistance: Generally expected that prices should fall after hitting resistance.

An example of price respecting support and resistance lines is given next in the chart of the Semiconductor HOLDRS (SMH):

support and resistance when stock is trending nowhere

Potential Buy Signal

It is a general expectation that when prices touch a historical level of support, prices will cease the negative momentum downward and reverse course; hence a potential buy signal could be triggered when price touches the support line.

Potential Sell Signal

If prices reach a historical price ceiling (resistance), typically it is expected that prices will stop at that level, unless some other external impetus like great earnings can send prices past historical resistance; therefore, a potential sell signal is triggered when price touches the historical resistance line.

Breaking Support and Resistance

Another fundamental concept of support and resistance is listed next and is shown in the chart below of Alcoa (AA) stock:

  • If price breaks below support, then that support level can become the new resistance level.
  • If price breaks above support, then that resistance level can become the new support level.

price breaks below support then support level becomes the new resistance level

Support and Resistance are basic yet vitally important technical analysis tools.

On every time frame, intra-day, daily, weekly, and monthly, Support and Resistance levels are focused in by traders. Knowledge of these levels could keep a trader on the correct side of the market.

For videos on Support and Resistance chart patterns, please see the Rectangle Chart Pattern Video and the Trendlines Chart Pattern Video.

The information above is for informational and entertainment purposes only and does not constitute trading advice or a solicitation to buy or sell any stock, option, future, commodity, or forex product. Past performance is not necessarily an indication of future performance. Trading is inherently risky. Commodity.com shall not be liable for any special or consequential damages that result from the use of or the inability to use, the materials and information provided by this site. See full disclaimer.

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