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Support and Resistance Levels

Support and resistance levels are price levels of utmost importance based on historical data and used by traders to identify where in the future the price movement may stall and reverse.

Support

support column

A support point is the lowest level of a prices downward movement, generally a single trough. It is a level at which the selling meets with buying “support” as buyers enter the market and price action loses momentum. At this point, the buyers energy has equaled the one of the sellers. As buyers grow stronger and eventually overcome the sellers, the price will reverse and rebound back up.

Resistance

roof_resistance

Resistance levels are logically the opposite of a support. As prices continue to rise, they will eventually hit a “ceiling” – a point where the buyers are equally matched by the sellers. As soon as the sellers overpower the buyers, the price will bounce back from the resistance level. As with supports, but the other way around, this would generate a signal for a short entry or will mark a suitable price target for previously entered long positions.

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