Support and resistance

From Financial Literacy Wiki

Support and resistance is a concept in technical analysis that the movement of the price of a security will tend to reverse its price movements at certain predetermined price levels.

Support is a price level where the price tends to find support as it is going down. This means the price is more likely to "bounce" off this level rather than move/break through it. However, once the price has passed this level, by an amount with some noise, it is likely to continue dropping until it finds another support level, a new price that traders find the security "cheap".

Resistance is the opposite of a support. It is where the price tends to find resistance as it is going up. It can be considered a ceiling of the price given the existing circumstances, unless it moves past it. Once the price has passed this level, by an amount with some noise, it is likely that it will continue rising until it finds another resistance level, a new price that traders find the security "expensive" or "right" time to take profit.

Support and resistance levels can be identified by trend lines. The more often a support/resistance level is "tested" (touched and bounced off by price), the more significance are given to that specific level.

Usually if a price breaks past a support level, that support level often becomes a new resistance level. The opposite is true as well, if price breaks a resistance level, it will often find support at that level in the future.