Support and Resistance
One of the most important concepts in technical analysis is support and resistance. They are price levels at which an asset price is prevented from pushing higher or lower. Support and resistance levels can be sloped lines (trendlines) or horizontal lines.
*Click here to see how to draw a line on charts on Webull.
Support
Support is a price level where there are sufficient demands in the market to stop the price from declining any further. As shown below, the asset price approached near $133 for 5 times over 8 months. Each time the price dropped to $133, the price started to climb up. Therefore, $133 can be identified as an important support level. Investors seeking to invest in this asset may want to buy at this price level.
Resistance
On the contrast, resistance is a price level where selling transactions prevent prices from rising any further. As shown below, the asset price approached near $146 for 4 times over 6 months. Each time the price jumped to $146, the price bounced back. Therefore, $146 can be identified as an important resistance level. Investors holding this asset may want to sell at this price level.
Reversal of support and resistance
A key concept regarding support and resistance is that once a support level is breached, it becomes a resistance level. Likewise, when a resistance level is breached, it becomes a support level.
*Finally, please note that technical analysis is not 100% accurate. The interpretation of results is generally subjective.
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