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.

How to Get Started Trading

If you are interested in trading using technical analysis, have a look at our reviews of these regulated brokers available in to learn which charting tools they offer:

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 73.0%-89.0% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Further Reading

Learn more about technical analysis charting concepts, strategies and indicators including Moving Averages,  the Relative Strength Index, and Stochastics.

Also see our guide to understanding the basics of reading candlestick charts and option trading strategies.

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