Support and Resistance

Support represents a price level where the price tends to halt its decline and bounce upward due to increased buying demand in that area, while resistance represents a level where the price tends to stop rising and reverse downward due to heightened selling pressure. These levels are typically formed from previous highs and lows, psychological round numbers, or technical tools such as Fibonacci levels and moving averages.

The importance of support and resistance lies in serving as the foundation for most trading strategies—whether entering on bounces from these levels, exiting as the price approaches them, or logically placing stop-loss and take-profit orders. When a resistance level is broken decisively, it often turns into new support, and vice versa, a concept known as role reversal.

The more frequently a specific level is tested without being broken, the greater its technical strength and significance become in the eyes of traders. Additionally, the validity of a breakout is usually confirmed by an accompanying surge in trading volume.

A common mistake is treating support and resistance as a single, exact line rather than a price zone, as well as entering a trade immediately upon touching the level without waiting for confirmation, such as a reversal candlestick pattern. Traders must also be cautious of false breakouts, where the price quickly snaps back inside the range after a brief breach.