What are support and resistance?
Support is a price area where falling price has stopped and turned up before; resistance is an area where rising price has stopped and turned down before. These areas come from past reactions. Because reactions happen over a range of prices rather than at a single one, they are better read as zones than as single lines.
What are support and resistance?
Support is an area where price, on the way down, tends to stop or turn up. Resistance is an area where price, on the way up, tends to stop or turn down. Both are places where price has reacted in the past.
Support sits below price on the chart and resistance above it. Which is which depends on where price is now. Broken support can later act as resistance, and broken resistance as support.
Why do they form?
When price reacts clearly in an area, that area leaves a mark on the chart. Previous highs and lows, ranges where price moved sideways for a long time and places where sharp moves started are the most familiar examples.
When price later returns to that area, many market participants are looking at the same place. Some expect the earlier reaction to repeat; others want to close a position at that level. This shared attention can make another reaction more likely. Even so, it is a tendency, not a rule.
Why a zone and not a line?
Each time price returns to the same area, it does not turn at exactly the same price. One time it reacts a little higher, another time a little lower. Wicks sometimes reach into the area while closes stay a little further back.
A single line cannot show this spread. Any move that crosses the line by a few units looks like a breakout, and any turn that stops a few units short looks like it "missed the level". A band covering the width over which reactions are spread shows the same behaviour more realistically. The band's near edge marks where price enters the zone, and its far edge marks where the zone would count as cleared.
What makes a zone stand out
- Number of reactions: Price has turned in the zone more than once.
- Size of the reaction: How far price moved away after the zone.
- Timeframe: A zone seen on the daily chart covers more price action than one on the 1H chart.
- Recency and age: A zone that worked recently and one that has not been tested for a long time can be read differently.
- Volume: Where the data exists, whether the reaction came on high volume.
These factors explain why a zone draws attention. None of them guarantees that price will react the same way next time it arrives.
What it shows, what it does not prove
What it shows
- Where price has reacted in the past
- Likely areas where price may react when it returns
- The point at which a move can count as having cleared the zone (the far edge)
What it does not prove
- That price will certainly turn at the zone
- How long a turn will last or how far it will go, if it happens
- That the zone will be just as strong next time
The MarketLevelMap view
How it relates to zones
Support and resistance are the basis of the zones MarketLevelMap shows. Zones are drawn as a band rather than a single price, because reactions happen within a band too. A close inside the band shows the zone being tested; a close beyond the far edge shows the zone being cleared.
It is sounder to read a zone together with the trend rather than on its own. In an uptrend, support zones below tend to come into play more often; in a downtrend, resistance zones above do.
Often confused with
For general information only. Not investment advice.Last updated: