What are support and resistance levels?
Quick Answer
Support is a price level where buying pressure prevents further decline; resistance is where selling pressure prevents further rise.
Detailed Explanation
Support and resistance are foundational concepts in technical analysis. Support levels are price zones where buying interest is strong enough to overcome selling pressure, preventing prices from falling further. Resistance levels are the opposite - zones where selling pressure overcomes buying, capping price advances. These levels form due to market psychology and become more significant with more touches.
Key Points
- 1Support: Floor where buyers step in
- 2Resistance: Ceiling where sellers appear
- 3More touches = stronger level
- 4Broken support becomes resistance (and vice versa)
- 5Round numbers often act as S/R
Example
AAPL bounces off $170 three times over two months. $170 is established support. If broken, it becomes resistance.
Related Questions
What is swing trading?
Swing trading is a trading style where positions are held for 2-14 days to capture short-to-medium term price movements.
What are the key Fibonacci retracement levels?
The key Fibonacci retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%, derived from the Fibonacci sequence.
Where should I place my stop loss?
Place stop losses below key support levels, pattern lows, or recent swing lows - where the trade thesis would be invalidated.