Support is a price level where buying interest has historically been strong enough to halt or reverse a falling price. Resistance is a level where selling pressure has been strong enough to halt or reverse a rising price. These levels form because market participants remember them — if a stock bounced at $50 three times in the past year, many traders expect it to bounce again and place buy orders near that level.

Why Support and Resistance Exist

Support and resistance levels are self-reinforcing. Traders who bought at a previous support level and are now in profit will often sell at the next resistance level to take profits. Traders who missed the move will place limit orders to buy at the previous support if price retests it. This concentration of orders at specific price levels creates the barriers that appear repeatedly on charts.

When a support level breaks (price closes below it convincingly), it often becomes resistance on a retest — and vice versa. This "role reversal" is one of the most reliable technical phenomena across all markets and timeframes.

Types of Support and Resistance Levels

  • Horizontal levels: Previous highs and lows, round numbers, price consolidation zones. The most common type.
  • Trend lines: Diagonal support and resistance connecting a series of swing lows (uptrend) or swing highs (downtrend).
  • Moving averages: Commonly watched moving averages (50 SMA, 200 SMA) often act as dynamic support/resistance because institutional traders use them as reference levels.
  • Pivot points: Mathematically calculated levels based on the prior session's high, low, and close. The Pivot Point Calculator computes these levels automatically.

Using S&R for Stop Losses and Targets

The most reliable stops are placed just beyond a meaningful support or resistance level — below support for a long trade, above resistance for a short. This location is chosen because a break of that level would invalidate the trade thesis. The target for the trade is typically the next resistance level above (for a long) or the next support level below (for a short).