What Is Support? 

Prices decline during a downturn when there is an excess supply compared to demand. For those holding out to purchase shares, prices get more appealing the lower they go. Demand that has been gradually rising will eventually reach a point where supply and demand are equal. Prices will then stop decreasing. This zone is called support. 

Support is a region on a price chart that displays the readiness of buyers to purchase. Demand will typically outpace supply at this point, halting the price decrease and starting it back up again. 

In a nutshell, support is a level or zone at which buyers’ interest is more than sellers, giving rise to price either trading sideways or trending up.  

What is resistance? 

© 2023 Krish Capital Pty. Ltd., Image source: Refinitiv 

Resistance is the reverse of support. Prices surge due to more demand than supply. As prices surge higher, there will come a point when the selling overpowers the desire to buy. This can take place due to many reasons. 

Traders might think that prices are too high or have met their target.  

Buyers might be hesitant to buy at such high prices or for several other reasons. 

Like support, resistance is also a level or zone at which supply is strong enough to stop the stock from moving higher.

Importance of support and resistance 

Support and resistance levels are one of the important concepts used by technical analysts. It forms one of the basics for drawing chart patterns.  

Finding out future support levels can prove beneficial for improving the returns of a short-term investing strategy. On the other hand, forecasting a level of resistance can be helpful because it will warn traders of a probable turnaround in price. 

Simply put, support levels are prices that traders feel the price is unlikely to go below. Similarly, when prices reach resistance levels, traders know that the price is unlikely to go up. However, readers must understand that these support and resistance levels are not sacrosanct.

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