Support and Resistance
Support and resistance are the foundation of technical analysis. If you only learn one concept from this entire course, make it this one.
Support = Price Floor
Support is a price level where buying pressure is strong enough to prevent the price from falling further. Think of it as a floor — price drops to this level, buyers step in, and price bounces.
Key Concept
The more times price bounces off a support level, the stronger it becomes. Each touch confirms that buyers are defending that level.
Resistance = Price Ceiling
Resistance is the opposite — a price level where selling pressure is strong enough to stop the price from rising. Price pushes up to this level, sellers take profit or open short positions, and price falls back.
Example
If a stock keeps hitting £50 and getting rejected, £50 is a resistance level. Traders see it, institutions see it, algorithms see it. That makes it a self-fulfilling prophecy.
How to Identify Levels
- •Previous highs and lows — the most common and reliable method. Look left on the chart.
- •Round numbers — psychological levels like £100, $50, 1.0000 in forex. Humans anchor to round numbers.
- •High-volume areas — price levels where a lot of trading occurred historically.
- •Zones, not lines — support and resistance are areas, not exact prices. Use zones of a few pence/cents.
Role Reversal
Key Concept
When support breaks, it often becomes resistance. When resistance breaks, it often becomes support. This is called role reversal (or polarity) and is one of the most reliable patterns in technical analysis.
Example
A stock holds support at £45 three times. On the fourth attempt, it breaks below. Now £45 acts as resistance — every rally to £45 gets sold. The floor has become the ceiling.
Common Mistakes
Warning
Don't over-draw levels. If your chart has 15 horizontal lines, you're not helping yourself — you're creating noise. Focus on the 2-3 most obvious levels that jump out at you. If you have to squint to see it, it probably isn't significant.
Risk Warning
Trading financial instruments carries a high level of risk and may not be suitable for all investors. You could lose some or all of your invested capital. Never trade with money you cannot afford to lose. This content is for educational purposes only and does not constitute financial advice.