Course: The foundations of technical analysis
Lesson Insights
Resistance and support are key concepts in technical analysis that refer to certain levels at which a security's price is likely to encounter difficulty in advancing or retreating.
Resistance is a level at which a security's price is expected to experience resistance as it rises, and is often seen as a ceiling for the security's price. This occurs when there is a large concentration of sell orders at a certain price level, which makes it difficult for the price to advance beyond that level. If the price of a security reaches a resistance level and then starts to decline, it is often considered a bearish signal.
Support, on the other hand, is a level at which a security's price is expected to receive support as it falls, and is often seen as a floor for the security's price. This occurs when there is a large concentration of buy orders at a certain price level, which makes it difficult for the price to decline below that level. If the price of a security reaches a support level and then starts to rise, it is often considered a bullish signal.
Both resistance and support levels can be identified by analyzing price charts, and are widely used by technical analysts to make investment decisions. It is important to note that resistance and support levels are not always absolute, and can change over time as market conditions change. As a result, it is important to continuously monitor these levels and be prepared to adjust investment strategies as necessary.
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