Support and resistance are two of the most important concepts in technical analysis—they help you find entry and exit points!

Here’s how to use support and resistance in your trading.

What Are Support and Resistance?

• Support: A price level where buying pressure is stronger than selling—price stops falling and bounces up. Think of it as a floor.
• Resistance: A price level where selling pressure is stronger than buying—price stops rising and turns down. Think of it as a ceiling.

How to Find Support and Resistance Levels

1. Look at past price action: Find price levels where the stock reversed multiple times.
2. Swing highs and lows: Swing highs = resistance; swing lows = support.
3. Moving averages: 50-day and 200-day moving averages often act as support/resistance.
4. Psychological levels: Round numbers (e.g., $100, $500) often act as support/resistance.

How to Trade Support and Resistance

1. Buy at support (in an uptrend): When price reaches support and bounces, buy—put a stop-loss just below support.
2. Sell at resistance (in a downtrend): When price reaches resistance and turns down, sell (or short)—put a stop-loss just above resistance.
3. Breakout: When price breaks above resistance (on high volume), it may keep rising—buy on the breakout. When price breaks below support (on high volume), it may keep falling—sell/short on the breakdown.
4. Role reversal: Broken resistance becomes new support; broken support becomes new resistance.

Action	What to Do	Stop-Loss
Buy at Support	Buy when price bounces at support	Below support
Sell at Resistance	Sell when price rejects resistance	Above resistance
Breakout Buy	Buy when price breaks resistance (high volume)	Below broken resistance
Breakdown Sell	Sell/short when price breaks support (high volume)	Above broken support

Common Mistakes with Support and Resistance

• Expecting exact levels: Support/resistance are zones, not exact prices—give it some room.
• Ignoring volume: Breakouts are stronger on high volume.
• Trading against the trend: Buy support only in an uptrend; sell resistance only in a downtrend.

Example of Support and Resistance

Imagine a stock that bounces between $50 and $60 for months:

• $50 = Support (floor).
• $60 = Resistance (ceiling).
• Buy at $50, sell at $60—until it breaks out.
• If it breaks $60 on high volume, buy—$60 becomes new support.

Frequently Asked Questions

How do I know if a breakout is real?

Look for high volume—low volume breakouts are more likely to fail (“false breakout”).

Should I buy at support every time?

Only in an uptrend—if the trend is down, support may break.

How far apart should support and resistance be?

It depends on the time frame—longer time frames have wider levels.

Final Thoughts

Support and resistance are powerful concepts—learn to find them, trade them with the trend, and use stop-losses!