Trend Analysis: Support/Resistance Levels

Support and Resistance levels are patterns of classical technical analysis. All trend (channel) lines, reversal and continuation chart patterns are only combinations of support and resistance levels.

Support level is a starting point of an uptrend, and is actually a tangent to the minimum prices. It is commonly thought that when the price falls down to the support level, Bulls (buyers) start to resist against further price decrease thus giving it support. This explains why is many cases the price will bounce back and start rising after having reached a support level.

After several attempts the price may break the support level. Once the support level is broken, it becomes the resistance level:

There is an example of when a support level became resistance in September 14, 2003:

Resistance level is a tangent to the maximum prices:

It is assumed that once the price reaches this level it will not point higher. After several attempts the price may break the resistance level. Once the resistance level is broken it becomes the support level.

Support and resistance levels are very easy to create and they are a very effective method to forecast price behavior. In order to define if the support/resistance level breakout is true, please refer to the criteria outlined for trend lines.

Warning: This document does not constitute an offer or a recommendation to enter into any transaction. All views and statements expressed are believed to be true and accurate when published. Any person relying on this information to trade does so entirely at his/her own risk. The markets can be very volatile. Prices may move rapidly against you, and past performance is not necessarily a guide to future performance.