Every trading strategy, no matter how complex, ultimately comes down to one question: where are buyers likely to step in, and where are sellers likely to show up?
Those places are called support and resistance. Master them, and you understand the battlefield every trade is fought on.
The Basic Concept
Support is a price level where buying pressure is expected to be strong enough to stop a decline. Price has bounced here before, so traders expect it to bounce again.
Resistance is a price level where selling pressure is expected to be strong enough to stop a rally. Price has stalled here before, so traders expect it to stall again.
Think of support as a floor - price bounces off it. Resistance is a ceiling - price gets pushed back down from it.
But here's the key insight: support and resistance work because traders believe they work. They're self-fulfilling. When enough people expect a level to hold, they place orders there, and those orders make the level hold.
How Levels Form
Support and resistance form through prior price action. Here's where to look:
Prior swing highs and lows. If price reversed at $50 before, that $50 level has memory. Traders who bought at $50 and watched it drop will sell when they "get back to even." Traders who missed the rally from $50 will buy when they get another chance.
Round numbers. Psychological levels like $100, $50, $10 act as support and resistance because humans think in round numbers. More orders cluster at these prices.
Consolidation zones. Where price spent a lot of time trading sideways, many positions were established. Those traders will act when price returns to "their" zone.
Gap fills. Gaps often get "filled" - price returns to close the gap. The gap's edges become important levels.
Moving averages. The 50-day and 200-day moving averages act as dynamic support/resistance because so many traders watch them.
Zones, Not Lines
New traders make a critical mistake: they think support and resistance are exact prices. They're not. They're zones.
Price might bounce at $50.12 one time, $49.87 the next, $50.45 the third. All of these are the "$50 level." Trying to pin it to an exact penny gets you stopped out on noise.
Think in areas: "The $49.50 to $50.50 zone is support." This gives you room for the messiness of real markets.
The stronger and more tested a level, the wider the zone you should consider. A level that's held five times creates more memory (and more orders) than one that's held once.
Role Reversal
Here's where it gets interesting: when support breaks, it often becomes resistance. When resistance breaks, it often becomes support.
Why? Psychology.
Imagine support at $50 breaks and price drops to $45. All those traders who bought at $50 are now underwater. If price rallies back to $50, many will sell to "get back to even." Their collective selling creates resistance at what used to be support.
The same works in reverse. If resistance at $60 breaks and price rallies to $65, traders who sold at $60 are now losing on their shorts. If price pulls back to $60, they'll cover - their buying creates support at what used to be resistance.
This "polarity" principle is one of the most reliable phenomena in technical analysis.
Testing and Strength
Not all levels are equal. Some factors make support and resistance stronger:
Multiple touches. A level that's held three times is stronger than one that's held once. Each test that holds reinforces the level in traders' minds.
Higher timeframe. A support level on the daily chart is more significant than one on the 5-minute chart. More traders see it, more orders sit there.
Confluence. When multiple factors align at the same price - a prior high, a round number, and a moving average all at $100 - that level is much stronger than any single factor alone.
Volume. Levels where heavy volume occurred are more significant. That volume represents real positions that need to be dealt with.
Recency. Recent levels are more relevant than ancient ones. A support from last week is more actionable than one from five years ago.
Trading Support and Resistance
There are two basic approaches:
Bounce trading: Buy at support, sell at resistance. You're betting the level will hold. This works in ranging markets.
- Wait for price to reach the level
- Look for rejection (wicks, reversal candles)
- Enter when rejection is confirmed
- Stop below/above the zone
- Target the opposite level
Breakout trading: Buy when resistance breaks, sell when support breaks. You're betting the level will fail. This works in trending markets.
- Wait for price to break through the level with conviction
- Look for volume confirmation
- Enter on the breakout or on a retest of the broken level
- Stop on the other side of the level
- Target based on the move's projected distance
The key is knowing which environment you're in. Bounce trading during breakouts gets you run over. Breakout trading in ranges gets you chopped up.
The Fakeout Problem
Sometimes support breaks, everyone panics, and then price reverses and rallies. That's a fakeout - and they're common at significant levels because they trap traders and fuel the real move.
How to handle fakeouts:
- Wait for confirmation: Trading the break itself is often premature. Wait for a close beyond the level, or for a retest that holds.
- Watch volume: Real breakouts usually have volume. Low-volume breaks are more likely to be fakeouts.
- Use time: A break that holds for one candle is less convincing than one that holds for several.
- Accept some losses: You can't avoid all fakeouts. Keep position sizes small enough that getting caught in one doesn't hurt badly.
The Bottom Line
Support and resistance are the map of the market. They tell you where the key battles will be fought - where to look for entries, where to place stops, where to take profits.
Think in zones, not lines. Respect role reversal. Look for confluence. And always consider context: is this a market where levels are holding, or one where they're breaking?
Modern level-plotting systems go beyond manual charting by calculating Volume Profile POC (where the most volume transacted), VWAP bands across multiple periods, and session-based pivots automatically. Levels based on actual traded volume carry more weight than lines drawn through swing points - they represent where institutional orders actually filled.
Every sophisticated trading strategy builds on these basics. Master support and resistance first, and everything else becomes clearer.
Janus Atlas auto-plots 50+ level types: Volume Profile POC/VAH/VAL, daily/weekly/monthly VWAP with standard deviation bands, HTF pivots, session boundaries, and confluence zones where multiple levels cluster. Levels based on actual traded volume, not arbitrary lines.
See institutional levels →