Support and resistance
Also known as: support level, resistance level
Support and resistance are price levels in technical analysis where a stock repeatedly stops falling (support) or stops rising (resistance). Traders use these levels to identify trading ranges and breakouts.
Support and resistance are the two foundational price levels in technical analysis. A support level is a price floor where buying demand has repeatedly stepped in to halt declines. A resistance level is a price ceiling where selling pressure has repeatedly capped rallies. A stock bouncing between the two is said to trade in a range, or "channel," and technicians consider that range more meaningful the more times each level holds.
For example, a stock that has fallen to $40 and rebounded three times, while stalling near $50 on each rally, has support at $40 and resistance at $50. Range traders would look to buy near $40 and sell near $50, expecting the pattern to repeat.
The levels matter most when they break. A breakout above resistance on strong volume is a bullish signal — the old ceiling often becomes the new floor, as former resistance turns into support. A breakdown below support is bearish, and the broken floor tends to act as resistance on subsequent rallies. Technicians tie these moves to sentiment: investors who missed the earlier bounce buy the breakout, while trapped owners sell into rallies after a breakdown.
Support and resistance appear on the Series 7 within technical analysis, and on the Series 65 and Series 66 within equity trends, theories, and chartist strategies. Exams typically test the definitions, what a breakout or breakdown signals, and the contrast between technical analysis (price and volume patterns) and fundamental analysis (financial statements and value).
Key takeaways
- Support is a price level where buying interest repeatedly stops declines; resistance is where selling pressure stops rallies.
- A stock oscillating between support and resistance trades in a range that technicians use for entry and exit points.
- A breakout above resistance is bullish, and former resistance often becomes new support (and vice versa).
- These are technical analysis concepts based on price history, not on a company's fundamentals.
- The Series 7, Series 65, and Series 66 exams test support, resistance, and breakout signals.