Support and resistance

Floors and ceilings

Imagine throwing a bouncy ball in your bedroom. It hits the floor and bounces up. It hits the ceiling and bounces down. Prices often do something similar.

• Support is a price where a falling price keeps stopping and bouncing back up. It's a floor.
• Resistance is a price where a rising price keeps stopping and turning back down. It's a ceiling.

Look at the drawing. Every time price climbs to the top line, it gets pushed back down. Every time it falls to the bottom line, it bounces back up.

Why do floors and ceilings happen?

Think about a rare trading card at your school.

• Whenever the card drops to $5, lots of kids think "What a bargain!" and buy one. All that buying stops the fall. That's support at $5.
• Whenever the card climbs to $9, kids who own one think "That's a great price, I'll sell." All that selling stops the climb. That's resistance at $9.

People also remember prices. A kid who bought at $9 and then watched it drop to $6 feels bad. When the price comes back to $9, he thinks "Finally, I can get my money back," and sells. More selling at $9 makes the ceiling even stronger.

Round numbers

Prices like $10, $50 and $100 are round numbers. People love them. They set their buy and sell plans at them, so price often stalls there too.

Zones, not exact lines

A floor is more like a thick rug than a thin line. Price might stop at $5.02 one time and $4.95 the next. Good traders draw support and resistance as an area, not one exact penny.

Old ceiling, new floor

Sometimes price finally smashes through a ceiling. Then something interesting often happens:

The kids who missed out at $9 now think "If it comes back to $9, I'm buying." So when price dips back to $9, buyers jump in, and the old ceiling acts like a floor. Traders call this a role reversal. It works the other way too: a broken floor often becomes a new ceiling.

How traders use them

1. Look left. Scroll back on the chart and find prices where price turned around before.
2. Mark them. Draw a line or a box at each one.
3. Watch what happens when price comes back. Does it bounce? Or does it break through?

A floor that held three times gets noticed by lots of people. But every test also uses up some of the buyers waiting there. Sooner or later, one side runs out and the level breaks.

Remember

• Support is a floor where buying showed up before. Resistance is a ceiling where selling showed up before.
• Draw them as zones, not exact pennies.
• A broken ceiling often becomes a floor, and a broken floor often becomes a ceiling.
• A level is a place to watch closely, not a promise.