Support and resistance

Support and resistance lines are the most common tools used by technical analysts. They act as barriers at certain price levels. Here, (short-term) price reversals or pauses are expected. The more often these levels are tested, the stronger they are thought to be.

These lines are called support if the asset is trading above the price level of the barrier line. They are called resistance if the opposite is true. Support lines become resistance lines if the price dives below it. Resistance lines become support lines if the price moves above it.

Although support and resistance lines are usually horizontal lines, trend lines are often used with the same purpose. As mentioned in the article about technical indicators, moving averages are often used with the same purpose as well.

Traders often try to open long positions above supports and place stop losses below them. Resistances are used to look for take-profit points. Shorts are opened below resistance levels with stop losses placed above them.