Support and Resistance
Just as any engineer, when constructing a building, starts by thinking about the foundations and pillars that support it, a price chart is also built upon areas of support and resistance. They are the foundation of technical analysis; without them, trading becomes random. Understanding them helps you anticipate price movement: Will the price bounce upward or downward? Or will it break through resistance or fall below support?
Support
Support is a price area or level on the chart where a downward move temporarily stops due to buying pressure outweighing selling pressure. In this area, demand appears clearly, causing prices to consolidate or rebound upward. Support is viewed as a “floor” that protects the price from falling further. The more times price bounces from it, the stronger and more reliable it becomes in technical analysis.
Resistance
Resistance is a price area or level on the chart where an upward move temporarily stops as selling pressure exceeds buying pressure. In this area, supply appears strongly, pushing prices to pause or pull back downward. Resistance is seen as a “ceiling” that limits further price increases. The more times price fails to break through it, the more significant it becomes and the more it is relied upon in future market expectations.
The chart illustrates how breaking above resistance turns it into support, while breaking below support turns it into resistance.
Foundations for Determining the Strength of Support and Resistance
- The stronger and farther the price reacts away from a level, the more important that level becomes.
- The larger the timeframe, the stronger the level.
- In an uptrend: breaking a resistance level and retesting it turns it into a strong support zone.
- In a downtrend: breaking a support level and retesting it turns it into a strong resistance zone.
- Levels that align with a trend line are considered highly significant areas.
- In an uptrend, strength lies with buyers; in a downtrend, strength lies with sellers.
The Psychology Behind the Formation of Highs and Lows
- In a downtrend: highs form because sellers are strong enough to push the price downward.
- In an uptrend: lows form because buyers are strong enough to push the price upward.
Chart Notes
- A strong bounce from a previous support level increases the likelihood of price rising upon a retest.
- Breaking a support level turns it into strong resistance that can hinder price advances.
- The convergence of a trend line with support areas represents a strong buying opportunity.
- The convergence of a descending trend line with resistance areas represents a strong selling opportunity.
- Price channels also reflect the relationship between support and resistance.
This chart illustrates how a support zone was broken and turned into a strong resistance area that was able to force prices sharply downward.
As for this price chart, it shows how to connect trend lines with support areas. The points where a support zone intersects with an ascending trend line are considered excellent buying areas and represent very strong zones.
Likewise, in a downtrend example, the intersection of resistance zones with a descending trend line represents strong resistance areas suitable for selling trades.
The image displays the price chart of the EUR/CHF pair on the four-hour timeframe. The chart shows a clear downtrend represented by a downward-sloping blue trend line, which the price has consistently respected, declining each time it touches it. We also observe horizontal resistance zones marked in red, from which the price has reversed downward multiple times, confirming sellers’ control over the market. Every upward attempt failed either upon reaching these zones or during a retest of the trend line, allowing the bearish movement to continue. This chart represents a clear example of combining horizontal support and resistance with trend lines to identify strong and reliable selling opportunities in bearish markets.
- In a sideways (ranging) market:
- Resistance = the upper boundary of the range.
- Support = the lower boundary of the range.
- The image shows the daily chart of the GBP/JPY pair, with clear identification of the main support and resistance levels. At the bottom, a blue rectangle represents a strong support zone around the 190–192 levels, from which the price has rebounded upward several times, confirming its strength as a buying area. At the top, a red line represents a resistance zone near the 205–208 levels, which has halted price advances on more than one occasion, indicating strong selling pressure in that area.
- Between these two levels, the price moved within a sideways range for extended periods, reflecting a balance of power between buyers and sellers until a decisive breakout occurs on either side.
The image displays the daily chart of the GBP/USD pair, illustrating how price moved from a downtrend into an uptrend. In the first part of the chart, a clear descending channel appears, where price touched resistance levels several times (marked in red) and reversed downward, reflecting strong selling pressure.
Later, price broke out of the descending channel and the movement shifted into an uptrend within a new ascending channel. The previously broken resistance areas turned into strong support zones (marked in blue), proving their strength as price rebounded from them multiple times, as indicated by the green arrows. This chart clearly demonstrates the principle of role reversal between support and resistance and highlights the importance of combining them with price channels.
Important Tips
- In an uptrend: focus on support levels and expect price to bounce upward from them, and do not give major importance to resistance levels.
- In a downtrend: focus on resistance levels and expect price to reverse downward from them.
- Always identify key levels across all timeframes, as this makes your trading clearer and easier, and helps you anticipate the next major price movements.
