The concept of support and resistance
Support and resistance are psychological levels in a market where the balance between bulls and bears shifts.
Resistance
Resistance acts as a ceiling on price, this is where we find the bears resist the bulls enough to stop the price rising. We see this expressed in the price, which achieves a high.
Support
Support is the opposite and occurs at lows in price, the support level acts as a floor on price, this is when the bulls resist the bears to stop the price falling further.
Why analyze S&R?
Traders analyze support and resistance levels to identify where this shift occurred and how the price may be influenced in the future. The assumption made is market participants will remember where a point of support or resistance occurred previously – the reasons they resisted or supported the price might still hold and repeat. This is a significant insight, it will tell us that there might be a change of trend at one of these points.
S&R occurs in many shapes and forms. There are lots of methods and techniques for analyzing it – we’ll show you the main ones over the next couple of lessons.
- Support and resistance are key psychological points in a market.
- Resistance is a ceiling on price – when bears resist the bulls enough and stop the price moving higher.
- Support is a floor on price – when bulls resist the bears enough and stop the price moving lower.
- We assume participants will remember this change of control in the future. Traders analyze these changes in market psychology and use it as a significant insight.
- Because it occurs in many shapes and forms there are many ways of analyzing support & resistance.
