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FAQs

Why does resistance turn into support? ›

Support and resistance role reversal

A key concept of technical analysis is that when a resistance or support level is broken, its role is reversed. If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support.

The Bottom Line

The basics of support and resistance consist of a support level, which can be thought of as the floor under price, and a resistance level, which can be thought of as the ceiling above price.

Support levels are levels where a declining stock will find bottom and bounce up from. Supports are formed when a stock breaks above resistance and holds above that level: the old resistance then becomes support. Support levels are also formed when a stock spends a lot of time at one level and then breaks upward.

'Support' and 'resistance' are terms for two respective levels on a price chart that appear to limit the market's range of movement. The support level is where the price regularly stops falling and bounces back up, while the resistance level is where the price normally stops rising and dips back down.

Simply mark visible highs and lows on your chart; the higher highs and lower highs will serve as resistance levels, whereas the lower lows and higher lows will serve as support levels. It is always recommended that these lines are marked on longer timeframes to have reliable support and resistance levels.

The support and resistance lines are only indicative of a possible reversal of prices. They by no means should be taken for ascertain. Like anything else in technical analysis, one should weigh the possibility of an event occurring (based on patterns) in terms of probability.

If you are using trend lines, make sure you have at least three peaks or three troughs before you draw your lines, so that you have a useable trend line. Then, once you've plotted the trendlines onto your chart, your uptrend line will be the support level, while the donwtrend line will be the resistance level.

Support occurs where a downtrend is expected to pause, due to a concentration of demand. Resistance occurs where an uptrend is expected to pause temporarily, due to a concentration of supply. These levels, while they may appear arbitrary at first sight, are based on market sentiment and anchoring.

Key Points

Investors and traders use support and resistance to identify potential entry and exit points. Support occurs at key levels where a declining price trend is met by a concentration of buyers. Resistance occurs at key levels where a rising price trend is met by a concentration of sellers.

Resistance is the exact opposite of support and prevents a stock or asset price from rising any further. Therefore, the resistance level signifies the highest price of a particular stock or asset. The booming price makes sellers more interested in selling, but the lack of buyers reduces demand.

How do you find support in the stock market? ›

Support levels can be visualized using different technical indicators or by simply drawing a line connecting the lowest lows for the period. Applying trendlines or incorporating moving averages provides a more dynamic view of support. It can be a sign of reversal if a breach occurs on an uptrend.

One way to help you find these zones is to plot support and resistance on a line chart rather than a candlestick chart. The reason is that line charts only show you the closing price while candlesticks add extreme highs and lows to the picture.

The resistance of all materials changes as their temperature changes. If the temperature is lowered, resistance (typically) declines. In fact, if cooled sufficiently, the material becomes a "superconductor" with no significant resistance. Increasing the temperature (typically) increases resistance.

Since all of the current must pass through each resistor, it experiences the resistance of each, and resistances in series simply add up.

This is because resistance is caused by the collision between electrons and atoms present in the conductor. In this case, if the conductor is longer, there will be more collisions leading to higher resistance. The resistance of a conductor is inversely proportional to the area of the cross-section of the conductor.