Glossary
Resistance
A price level where rallies have repeatedly stalled because selling pressure has tended to overwhelm buying there.
On this page
Resistance is a price area where a rising stock has run into selling and turned back, often more than once. On a chart it looks like a ceiling. The idea is that at that level, sellers, such as holders who want to get out at break-even or traders taking profit, have been more eager than buyers. Resistance is the counterpart of Support, and the two are among the most widely used tools in Technical analysis.
How it works
Traders find resistance in a few common places:
- Prior highs. A level where earlier rallies peaked.
- Round numbers. $100, $50 or an index at 5,000 tend to collect orders.
- Former support. When a support level breaks, it often acts as resistance on the next rally, a principle called role reversal.
- Moving averages and trendlines. In a downtrend, a falling 50-day Moving average often caps bounces.
Resistance is better thought of as a zone than a precise price. The more times a level has turned price away, and the heavier the Trading volume there, the more weight traders give it.
What to watch for
- False breakouts. Price can poke above resistance intraday and close back below it, trapping buyers. Requiring a close above the level, or a margin such as 1% to 3%, filters some of these. See Bull trap.
- Self-fulfilling effects. Resistance works partly because so many people watch the same levels and place orders around them.
- Context. In a strong uptrend, resistance levels break more often than they hold.