What Are Support and Resistance Levels?
Support — a price level where buyers (bulls) prevent the price from falling further.
Resistance — a price level where sellers (bears) prevent the price from rising higher.
These levels reflect the balance between supply and demand in the market.
Identifying Trend Strength
Uptrend: a series of higher lows.
Downtrend: a series of lower highs.
Strong trend signals:
An uptrend breaking through resistance → buying signal.
A downtrend breaking through support → selling signal.
Link Between Supply and Demand
Resistance: shows where sellers are ready to increase sales.
Support: shows where buyers are ready to increase purchases.
When a breakout happens:
Resistance breaks: demand shifts upward — buyers are willing to pay more.
Support breaks: supply shifts downward — sellers accept lower prices.
Trader Behavior After Breakouts
After a breakout, traders reassess whether the new price is justified:
If the price seems too high/low → profit-taking, pullback.
If the price is accepted by the market → the move continues.
Possible scenarios:
Bull trap: a sharp drop after breaking resistance.
Bear trap: a sharp rebound after breaking support.
Role Reversal
A broken resistance often turns into support.
A broken support often turns into resistance.
How to Draw Levels
Support: drawn through price lows.
Resistance: drawn through price highs.
Level importance depends on:
Timeframe: weekly levels are stronger than daily ones.
Number of touches: 3–5 touches make a level more reliable.
Duration: the longer a level exists, the stronger it becomes.
Slope: the flatter the level, the more stable it is.
Conclusion
Support and resistance levels are a core tool of technical analysis. They help:
Identify strong trends,
Assess the balance of supply and demand,
Build strategies for entering and exiting trades.