In trading, support and resistance are the two most important price levels that help traders decide when to buy or sell a stock. These levels show how the price behaves and where it may reverse or continue its trend.
Support is the price level where a stock tends to stop falling and bounce up. Resistance is the level where the price usually stops rising and may fall back. Traders use both to plan entry and exit points effectively.
What is Support in Trading?
Support is a level where the demand is strong enough to stop the price from falling further. When the price comes near this level, buyers start entering, which pushes the price up again. It acts like a floor for the stock.
Example of Support
Let’s say IRFC share is trading between ₹150 and ₹200. Every time it reaches ₹150, it bounces back. This means ₹150 is the support level. If the price breaks below ₹150, it can go lower, forming a new support.
What is Resistance in Trading?
Resistance is the opposite of support. It’s a level where selling pressure increases and the price struggles to move higher. It acts like a ceiling. Traders often sell or book profits when the price touches this level.
Example of Resistance
If the same IRFC stock always falls back from ₹200, then ₹200 becomes the resistance level. If it breaks above ₹200, the next resistance might be ₹220 or higher.
Why Support and Resistance Matter
- They help traders identify entry (buy) and exit (sell) zones.
- They reduce risk by showing possible reversal points.
- They are the base of many trading strategies like breakout and pullback trading.
- They help in setting stop-loss and take-profit levels.
Support and Resistance Example Chart (Simple Explanation)
Imagine a ball bouncing between the floor and ceiling — the floor is support, and the ceiling is resistance. Every time the ball hits the floor, it bounces up (support). Every time it hits the ceiling, it comes down (resistance).
Types of Support and Resistance
- Horizontal Levels: Fixed price points where price reverses often.
- Trendline Levels: Diagonal lines connecting highs or lows in an uptrend or downtrend.
- Moving Averages: Dynamic support/resistance levels used in technical analysis.
- Fibonacci Levels: Common retracement points where price tends to react.
How to Use Support and Resistance in Trading
- Find key price zones from charts (like 1-month or 6-month levels).
- Wait for price to reach near support or resistance.
- Use confirmation signals (candlestick pattern or volume).
- Buy near support and sell near resistance.
- Always use stop-loss below support or above resistance.
Example: Combining Support & Resistance with Other Analysis
If you’re following mutual funds like HDFC Flexi Cap Fund, or stocks like IRFC Share Price & Target, looking at support and resistance helps you know where investors are likely to buy or sell.
How to Draw Support and Resistance
Traders use past price data to draw straight lines at areas where the stock reversed before. Tools on trading platforms (like TradingView or Ticker Tape charts) make this process easier.
Common Mistakes to Avoid
- Assuming support/resistance levels are exact points — they are always zones.
- Ignoring volume while checking breakouts.
- Not setting a stop-loss for protection.
- Entering without confirmation candle or trend direction.
Pros and Cons
| Pros | Cons |
|---|---|
| Helps in timing trades better. | Levels can fail during high volatility. |
| Improves accuracy of entry/exit points. | Not suitable alone without confirmation. |
| Easy to identify with practice. | Needs patience to wait for perfect setup. |
When Support and Resistance Break
If price crosses above resistance, that level becomes new support. Similarly, if it falls below support, that level becomes new resistance. This is called a role reversal in trading.
Summary
Support and resistance are the backbone of technical analysis. They show where prices can reverse or continue their direction. Mastering them helps traders take smart, low-risk decisions in the market.
FAQs – Support and Resistance in Trading
1. What is support in trading?
Support is a level where buyers step in and stop the price from falling further.
2. What is resistance in trading?
Resistance is the level where sellers take control and stop the price from rising higher.
3. How can I find support and resistance?
Use price charts, trendlines, and moving averages to identify past reversal levels.
4. Can support and resistance change?
Yes. Once the price breaks these levels, they often switch roles (support becomes resistance and vice versa).
5. Are support and resistance accurate?
They are not exact numbers but zones where price tends to react.
6. Can beginners use support and resistance?
Yes, it’s one of the easiest and most effective tools for beginners to understand price behavior.
7. Which is more important, support or resistance?
Both are equally important. Support helps in buying, while resistance helps in selling.
Tip: Combine support and resistance with indicators like RSI or MACD for better results.
Author: Masroor Alam | Published on October 20, 2025
