What are support and resistance?

What they represent

Behind every level are people making decisions. At support, buyers think the price is cheap and step in, while sellers stop selling. At resistance the opposite happens: those who bought lower take profits, and those who got stuck higher up use the chance to get out without a loss.

You identify levels by looking at the past: zones where price turned several times, major highs and lows, round numbers like $50 or $100, and price gaps that were left open.

Example: a sideways range

A sample stock spends two months between $74 and $80. Every time it approaches $80, sellers show up and the price falls; every time it drops to $74, buyers appear and it bounces. $80 is resistance and $74 is support.

Notice that the turns don’t happen on the same cent: sometimes the price reaches 79.50, other times 80.20. That’s why it’s better to draw zones instead of exact lines; their width depends on the asset’s price and volatility.

If one day the price closes decisively above $80, resistance has broken. What tends to happen next has a name: a polarity change. The old $80 resistance tends to act as support when the price comes back to test it from above.

How traders use them

• To place risk: a stop loss goes beyond the level that invalidates your idea, for example a little below support, and not right at the edge of the level, where normal noise can hit it.
• To estimate room to run: the distance to the next resistance gives you a sense of the space available and of the risk/reward ratio.
• To read patterns: a hammer at support is worth more than one in the middle of nowhere.

There are also dynamic levels that move with price, such as moving averages and trendlines.

How to mark levels step by step

1. Start with a higher timeframe: open the daily or weekly chart and look for the most obvious turns.
2. Mark zones, not points: group nearby highs or lows into a band whose width depends on the asset’s price and volatility.
3. Keep only a few levels: the two or three clearest ones above and below the current price are usually enough.
4. Check round numbers: prices like $50 or $100 attract orders and reactions.
5. Update: when a level breaks decisively, mark it as a possible polarity change instead of deleting it.

With practice, the important levels jump out at you; if you have to force the drawing, that level probably isn’t relevant.

Common mistakes

Drawing so many levels that any price looks important; treating levels as walls price will always respect; and confusing an intraday touch with a breakout. A breakout is normally judged by the candle’s close and, if possible, by volume. False breakouts, where price crosses the level and quickly comes back, are a normal part of the market.