Support is an area where falling price has repeatedly stopped and turned up. Resistance is an area where rising price has repeatedly stopped and turned down. They are the most widely used ideas in technical analysis, and the building blocks for nearly everything that follows.
Why levels work
- Memory. Traders who bought at a level that later rallied are happy to buy there again. Traders who missed it wait for a second chance.
- Resting orders. Limit orders to buy cluster at support; stop-losses from short sellers sit just above resistance. Those orders make reactions more likely.
- Self-fulfilling attention. Because so many traders watch the same obvious levels, their orders make the level matter.
Zones, not lines
Price rarely turns at the exact same tick twice. Draw support and resistance as zones that cover the wicks and bodies of the turning points, not as thin lines. A zone that is too narrow gets "broken" by every wick; one that is too wide stops being useful.
How to draw a level
- Start on a higher timeframe, such as the daily or 4-hour chart. Higher-timeframe levels carry more weight.
- Look for clear turning points where price reversed sharply, ideally more than once.
- Draw a zone covering the cluster of highs or lows, including the wicks.
- Note round numbers, like 1.1000 on EUR/USD or 5,000 on the S&P 500. They attract orders too.
- Keep only the levels closest to current price. A chart covered in lines helps no one.
When resistance becomes support
When price breaks decisively through resistance, that level often becomes support on the way back down, and broken support often becomes resistance. This is called role reversal (or polarity). Traders who sold at resistance and are now losing may buy back to exit at break-even when price returns, adding buying pressure at the same level.
Breakouts and fakeouts
Every level eventually breaks. The question is whether a break is real. Signs of a genuine breakout include a strong candle closing well beyond the zone, follow-through on the next candles, and (in markets where it's available) rising volume. A wick through the level that closes back inside is a fakeout, and in Module 5 you'll learn why these so often precede a move the other way.
Worked example: is it broken?
EUR/USD has resistance at 1.0880–1.0890. Price spikes to 1.0897, then the hourly candle closes at 1.0884.
Price traded above the zone but closed back inside it. That's a failed break, not a breakout. A close at 1.0905 followed by a candle holding above 1.0890 would be far more convincing.
Key takeaways
- Support is where falling price has turned up; resistance is where rising price has turned down.
- Draw zones covering the turning points, starting from higher timeframes, and keep only the nearest ones.
- Broken resistance often becomes support, and broken support often becomes resistance.
- Judge breakouts by the close and the follow-through, not by a wick through the level.