Support & Resistance: The Foundation of Chart Reading

When you look at a stock chart, prices don’t move randomly. They often stop, bounce, or reverse at certain levels. These “key levels” are called support and resistance — and they’re some of the most important concepts in trading.

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🟢 What is Support?

Support is a price level where buyers step in and keep a stock from falling lower.
Think of it like a floor: every time the price falls to this level, it finds support and bounces back up.

👉 Example: If Apple’s stock keeps bouncing around $150 and doesn’t fall below, $150 is a support level.

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🔴 What is Resistance?

Resistance is the opposite of support — it’s where sellers step in and keep a stock from going higher.
It acts like a ceiling: every time the price climbs to this level, it struggles to break through and often pulls back.

👉 Example: If Tesla’s stock keeps hitting $300 and pulling back, $300 is a resistance level.

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🔄 How Support & Resistance Work Together

• When support breaks, it can turn into new resistance.
• When resistance breaks, it can turn into new support.

👉 Example: If a stock finally breaks above $100 resistance, that $100 level often becomes new support. Traders call this a “role reversal.”

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🧱 Why Do These Levels Matter?

1. Decision Zones – Traders use them to decide when to buy or sell.
2. Risk Management – Stop-loss orders are often placed below support or above resistance.
3. Trend Confirmation – Breaking through resistance can signal strength. Falling through support can signal weakness.

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📊 How to Spot Support & Resistance

1. Previous Highs and Lows

   • Look left on the chart. Where did price bounce before? Where did it get rejected?

2. Round Numbers

   • Stocks often react to big “psychological” levels like $50, $100, $1,000.

3. Moving Averages

   • Lines like the 50-day or 200-day moving average can act as dynamic support or resistance.

1. Trendlines
   • Drawing diagonal lines connecting highs or lows can reveal hidden support or resistance zones.

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📝 Example

Imagine Netflix stock has bounced off $400 three times in the past month. That’s a strong support level.
But every time it climbs near $450, it falls back down. That’s resistance.

A trader might buy near $400 with a stop slightly below (risk management) and sell near $450.

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🎯 Quick Takeaways

• Support = floor where price struggles to go lower.
• Resistance = ceiling where price struggles to go higher.
• Once broken, support can become resistance and vice versa.
• Use past price action, round numbers, and moving averages to spot these levels.

Mastering support and resistance is like learning to read a map — it helps you know where price might turn, pause, or break out.

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🔑 Re-read this article in the Learning Center: Support & Resistance: The Foundation of Chart Reading

🔑 Next article in the Learning Center: Trendlines & Channels: Drawing the Path of Price

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