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Support and Resistance
Support and resistance are key chart concepts that help traders identify areas where price has previously reacted. These zones can help explain where buying or selling interest may increase.
What Is Support?
Support is an area on a chart where price has previously stopped falling and attracted buying interest.
Traders often watch these areas because price may react when it returns to a previous support zone.
Support is better thought of as an area or zone rather than one exact price.
What Is Resistance?
Resistance is an area where price has previously stopped rising and attracted selling pressure.
When price approaches a previous resistance zone, traders may watch for signs that buyers are weakening or sellers are becoming more active.
Resistance does not guarantee that price will fall. It simply identifies an area where price reacted before.
Visualising Support and Resistance
In a range, price may repeatedly move between an upper resistance area and a lower support area.
Why These Areas Matter
Previous Reactions
Traders can see where price previously changed direction.
Market Attention
Areas watched by many participants can sometimes attract increased activity.
Trade Planning
Support and resistance can help provide context for possible entries, exits and risk levels.
Market Structure
These areas can help traders understand how price is behaving within a wider trend or range.
Support and Resistance Can Break
Price does not always respect previous support or resistance.
If buying or selling pressure becomes strong enough, price can move through one of these areas. This is commonly called a breakout.
When Resistance Becomes Support
Sometimes a market breaks above resistance and later returns to the same area. That previous resistance may then behave as support.
Resistance
Price struggles to move above the area.
Potential Support
After a breakout, the same area may attract buyers on a return.
The opposite can also happen: broken support may later behave as resistance.
Zones, Not Exact Lines
Beginners often draw support and resistance as one perfectly precise line. In reality, price reactions frequently occur across a wider area.
Think in terms of price zones rather than expecting the market to react at one exact number.
Multiple Tests of a Level
A support or resistance area may be tested several times.
Repeated reactions can make an area more noticeable, but repeated testing does not guarantee that the level will continue to hold.
- Price may reject the area.
- Price may pause near the area.
- Price may break through the area.
- Market conditions can change at any time.
Support and Resistance Are Not Guarantees
These concepts help traders organise and interpret chart information, but they do not predict the future.
Key Takeaways
- Support is an area where buying interest has previously appeared.
- Resistance is an area where selling pressure has previously appeared.
- Support and resistance are better treated as zones than exact prices.
- Price can break through either type of level.
- Old resistance can sometimes become support.
- Old support can sometimes become resistance.
- No support or resistance level is guaranteed to hold.
DADA Trading Academy materials are provided for general educational purposes only and do not constitute personalized financial, investment or trading advice. Trading involves risk and losses are possible.