What is support and resistance?

The basic idea

Support and resistance are price levels that traders mark on a chart. Support sits below the current price. It is a level where price has stopped falling, or turned up, in the past. Resistance sits above. It is a level where price has stopped rising, or turned down.

The idea is that price tends to react near places where it has reacted before. People use that as a map. It is a way of organising a chart. It is not a guarantee that a level will hold.

Support

A level below price where earlier falls paused or reversed.

Resistance

A level above price where earlier rises paused or reversed.

Zone

A band of prices around a level, used because price rarely turns at one exact tick.

Break

Price moving through a level instead of turning at it.

Where traders find levels

Common places to mark a level are earlier swing highs and lows, the previous day’s high and low, the open of a session, and round numbers. Moving averages are sometimes used as moving levels.

In our assumptions a short-term high is a high with a lower high on the candle immediately before it and the one immediately after it. A low is the mirror. Levels built from points like these are exact enough to test.

A level is a zone, not a line

Price often turns a little above or below the level you drew. A wick may poke through and come back. A close may land just beyond. So many traders draw a zone, a band of prices, rather than one line.

How wide the zone is, and whether a wick or only a close counts as a break, are choices. Different choices give different trades.

A level is a zone. Decide how wide it is, and what counts as a break, before you test it.

When support becomes resistance

When price breaks below a support level and later comes back up to it, traders often watch the same level again, now as resistance. The reverse also happens, with broken resistance later acting as support.

This is a common way of reading charts. It is also a place where hindsight is easy. It is simple to see afterwards which level mattered. It is harder to know it at the time.

What support and resistance cannot tell you

A level says where price reacted before. It does not say it will react again, or by how much, or how often. Levels fail often enough that traders usually plan for it with a stop.

Drawing levels after the fact is a classic way to fool yourself. Every chart has levels that look obvious once you know what happened. A rule written in advance, with exact wording, does not have that problem.

The futures angle

Futures prices are specific numbers on a specific contract month. We run on raw prices and do not back-adjust them, so a level in our data is a price that actually traded. A roll can put a gap between old and new contracts, and a level from the old one may not line up with the new one.

One tick on NQ is 0.25 points, which is $5.00, and a point is $20, so the width of a zone has a dollar cost you can read off. Previous day high and low is one of the starting presets in our builder. Replay it on real NQ data, free, in the Trade Lab.