Support and resistance are arguably the single most important concept in technical analysis. If you only learn one thing from this entire course, make it this.
What Is Support?
Support is a price level where buying pressure is strong enough to stop the price from falling further. Think of it as a floor. Every time the price drops to this level, buyers step in and push it back up.
What Is Resistance?
Resistance is a price level where selling pressure is strong enough to stop the price from rising further. Think of it as a ceiling. Every time the price rises to this level, sellers step in and push it back down.
Example
Imagine a stock that keeps bouncing between £4.00 and £5.00. Every time it hits £4.00, buyers think "that is cheap" and buy. Every time it hits £5.00, holders think "that is expensive enough" and sell. £4.00 is support. £5.00 is resistance.
How to Identify Them
- Previous highs and lows — the most reliable method. Look left on your chart for prices where the market previously reversed.
- Round numbers — £100, £50, £10. Human psychology means orders cluster at round figures.
- Multiple touches — a level that has been tested 3+ times is stronger than one tested once.
The Flip: Support Becomes Resistance
Key Concept
When price breaks through support, that old support level often becomes new resistance. And when price breaks through resistance, that old resistance often becomes new support. This "flip" is one of the most reliable phenomena in trading and creates excellent entry opportunities.
Drawing Levels on a Chart
Use horizontal lines at key price points. Think of levels as zonesrather than exact prices — a support zone might be between £4.95 and £5.05 rather than exactly £5.00. Markets are not precise — humans and algorithms cluster around areas, not exact numbers.
Why These Levels Work
Partly it is a self-fulfilling prophecy — thousands of traders see the same levels and place orders there, which makes the levels hold. But it is also fundamental: institutional investors place large orders at specific prices, and those orders genuinely create floors and ceilings.
Do Not Over-Draw
Warning
A common beginner mistake is drawing too many levels until your chart looks like a prison bar. If every price is a "level," then no price is a level. Stick to the 3-5 most obvious, most-tested levels on your chart. If you have to squint to see it, it is not a real level.
Risk Disclaimer: Trading financial markets involves significant risk of loss. The content on this page is for educational purposes only and does not constitute financial advice. Past performance is not indicative of future results. You should not trade with money you cannot afford to lose. 70-80% of retail investor accounts lose money when trading CFDs and spread bets. Consider whether you understand how these products work and whether you can afford the high risk of losing your money.