In short: Support and resistance are price areas where the price often stopped or turned in the past. Many traders use them to choose entry points, stop-losses and price targets. They are not guarantees: levels can break, and the price can also shoot straight through.
See also the practical example in Support and Resistance in Practice. This tutorial explains the theory.
What are support and resistance?
- Support is a price level where the price previously stopped falling. Enough buyers apparently saw the price as attractive there.
- Resistance is a level where the price previously stopped rising. Enough sellers wanted to take profit there, or to short (bet on a falling price).
Why does this work to some extent? Traders remember earlier turning points. Many people place orders around the same levels, so the price reacts there more often. This is a habit of the market, not a law of nature. A level that held 10 times can break on the 11th.
Finding and drawing levels
Start on a higher timeframe
Begin with a daily or weekly chart covering about 6 to 12 months. Look for clear turning points: peaks and troughs where the price turned sharply.
Draw zones, not exact lines
A level is an area. Draw a band between, say, €39.80 and €40.20, and use the wicks (the thin lines of candles) as a guide. The more often the price turned in that zone, the more important the zone seems. Two to three touches is a common requirement before taking a level “seriously”.
Watch for these common levels
- Earlier highs and lows: the most visible levels.
- Round numbers: €50, €100, 1,000 points. Many people place orders there.
- Moving averages: such as the 50-day or 200-day average. See Moving Averages.
- Trend lines: sloping support or resistance along successive lows or highs.
Less is more. A chart full of lines does not help. Keep only the levels you can really see.
How do you use them?
Bounce
In a bounce trade you bet that the level keeps working. For example: the price falls to support, a candle shows a reversal pattern (see Reading Candlestick Patterns) and you buy with a stop-loss just below the zone. You quickly find out if you are wrong: the price closes below support.
Breakout
In a breakout trade you bet that the level breaks. When the price breaks above resistance, many traders buy, which can strengthen the move. Watch these points:
- Close: wait for a closing price beyond the level, not just a brief spike.
- Volume: a breakout on higher-than-normal volume is more convincing. See Volume Analysis.
- False breakout: the price moves through the level briefly and quickly returns. This happens often, even with good-looking setups.
Retest and role reversal
After a breakout the price sometimes returns to the old level to “test” it. A broken resistance can then act as support, and the other way round. This is called a role reversal. Some traders wait for the retest to enter with less risk. The downside: sometimes the retest never comes and the price runs away without you.
Worked example (hypothetical)
Suppose stock X turned back three times around €40 (zone €39.80 to €40.20). Then a candle closes at €40.60 on clearly higher volume. The price drops back to €40.20 and holds there. You buy at €40.30.
- Stop-loss: €39.70 (below the old resistance zone). Risk per share: €40.30 − €39.70 = €0.60.
- Next level: resistance around €42.50. Possible gain per share: €42.50 − €40.30 = €2.20.
- Reward-to-risk ratio: €2.20 ÷ €0.60 = about 3.7:1.
A favourable ratio says nothing about the chance that it works. In a false breakout your stop-loss is hit and you lose €0.60 per share. Run the numbers with the risk/reward calculator and decide your number of shares with the position size calculator.
Limitations
- Subjective: two people do not draw the same levels. A fixed routine helps.
- Levels break: the more often a level is tested, the more orders have already been filled. That can actually make it weaker.
- Hindsight: on an old chart the levels look obvious. Live, you also see the lines that did not hold.
- News comes first: a company announcement or an interest rate decision can ignore any level in a single move.
- Differs per market and timeframe: what works on a daily stock chart can play out differently on a 1-minute crypto chart.
- Costs and slippage: in fast breakouts your order can be filled at a worse price than you expected (slippage).
Common mistakes
- Drawing too many lines without priority.
- Entering too early at a level, without confirmation.
- Using no stop-loss because “the level will hold anyway”.
- Chasing breakouts after the price has already overshot.
- Ignoring the trend: bounces against the main trend fail more often.
Practice questions
These are practice questions to answer yourself. They appear on the page without an answer button.
- Why do you draw a zone instead of a line?
- What is a role reversal and why is it not a certainty?
- Name two ways to make a false breakout less painful.
- How do you set a stop-loss for a support bounce?
What next?
Combine levels with a trend indicator, check the volume at every signal and decide your risk in advance with the risk-per-trade tool. Practise first on old charts or with a demo account.
Work it out yourself
Test yourself
Practice questions to check your understanding, not advice.
Why do many traders draw a zone instead of an exact line?
- Because price always touches a level to the cent
- Because a line does not fit on a chart
- Because price rarely touches a level exactly and a level is an area
Show answer
Answer:C. Because price rarely touches a level exactly and a level is an area
The tutorial says a level is an area, for example €39.80 to €40.20, and not an exact price.
What is a role reversal?
- A broken resistance sometimes starts acting as support (or the other way around), but not always
- A broken resistance always becomes support
- Switching timeframe during a trade
Show answer
Answer:A. A broken resistance sometimes starts acting as support (or the other way around), but not always
A role reversal is a scenario, not a rule. The retest may also not happen and price then moves on without you.
Entry €40.30, stop-loss €39.70, next level €42.50. What is roughly the ratio of possible gain to risk per share?
- 1 : 1
- 3.7 : 1
- 0.6 : 1
Show answer
Answer:B. 3.7 : 1
Risk: €40.30 − €39.70 = €0.60. Possible gain: €42.50 − €40.30 = €2.20. €2.20 ÷ €0.60 is about 3.7 : 1. That says nothing about the chance of success.
Which statement about support and resistance levels fits the tutorial?
- A level that held 10 times will also hold the 11th time
- A level can break, for example on news or a false breakout
- A level works the same on every market and timeframe
Show answer
Answer:B. A level can break, for example on news or a false breakout
The tutorial calls it a market habit, not a law of nature: a level that held 10 times can break the 11th time. News can ignore any level.
Frequently asked questions
- What is the difference between support and resistance?
- Support is a price level where the price often stopped falling in the past. Resistance is a level where the price often stopped rising. They are not hard walls but areas where buyers or sellers were active before.
- Why do many traders draw zones instead of lines?
- Price rarely touches a level to the exact cent. A zone of, say, €39.80 to €40.20 allows for that margin. It also gives a more honest picture: you know the level is an area, not an exact price.
- How do I recognise a false breakout?
- In a false breakout the price briefly moves through a level but then closes back behind it. You cannot know in advance. It helps to wait for a candle to close beyond the level, to check the volume and to use a stop-loss, so that a failed breakout costs you little.
- Does support always become resistance after a break?
- No. It is a well-known pattern that a broken support level often acts as resistance (a role reversal), but it does not always happen. Treat it as a scenario, not a rule.
- Which timeframe is best for drawing levels?
- Start on a higher timeframe, such as the daily or weekly chart. Levels there have usually been seen by more people and are therefore more important. Only then add detail on a lower timeframe. This stops you from ending up with dozens of unimportant lines on your screen.