What Are Support and Resistance?
Support and Resistance are two of the most important concepts in technical analysis. They are key price levels where the market often reacts, either by bouncing back or reversing direction.
Traders use these levels to identify:
· Potential buy opportunities
· Potential sell opportunities
· Market reversals
· Breakout points
Support
Support is a price level where the market tends to stop falling because buyers begin entering the market. It acts like a “floor” underneath the price.
When the price approaches support:
· Buying pressure increases
· Sellers become weaker
· The market may bounce upward
This is why traders often look for BUY opportunities near support levels.
Example
If gold keeps dropping to 3300 and repeatedly bounces higher from that level, then 3300 becomes a support level.
Resistance
Resistance is the opposite of support. It is a price level where the market tends to stop rising because sellers begin entering the market. It acts like a “ceiling” above the price.
When the price approaches resistance:
· Selling pressure increases
· Buyers become weaker
· The market may reverse downward
This is why traders often look for SELL opportunities near resistance levels.
Example
If EUR/USD repeatedly rises to 1.1200 but fails to move higher, then 1.1200 becomes a resistance level.
How Traders Use Support & Resistance
According to the document:
At Support
· BUY when price fails to break below support
· SELL if price breaks and closes below support
At Resistance
· SELL when price fails to break above resistance
· BUY if price breaks and closes above resistance
Why These Levels Matter
Support and resistance work because many traders watch the same price areas. This creates strong reactions in the market.
The more times a support or resistance level holds, the stronger it becomes.
Simple Way to Remember
· Support = Floor = Buyers
· Resistance = Ceiling = Sellers
You can think of price moving between a floor and a ceiling:
· The floor stops price from falling
· The ceiling stops price from rising
Once price breaks through either level strongly, the market often continues moving in that breakout direction.