The terms support and resistance levels are by far the two most commonly used terms in technical analysis. Technical analysis is the most widely used trading analysis approach by traders and investors and entails the use of various charting tools to generate short-term trading ideas. It is a technique that applies to any financial asset with historical trading data.
If a trader sees the market price is moving close to a resistance level, they may decide to close their position and take the profit, because there is a chance the price may fall back and they lose any profit they haven’t already locked in. Traders will often identify areas of resistance (and support) to make decisions on trades, including where to place stop losses and take profits.
Resistance levels can be identified on charts using [trendlines] and [moving averages].
Key takeaways:
- Technical analysts use resistance levels to identify price points on a chart to help them make trading decisions.
- Resistance occurs where an uptrend is expected to pause temporarily– i.e. There is resistance from the market.
- Using resistance levels in trading is a technique that applies to any financial asset with historical trading data.