Explainer · Stock Charts
Support and resistance: what they are and are not
Support and resistance are the horizontal lines people draw on stock charts where price has paused or turned before. They are useful for describing a chart and easy to overtrust.
Quick answer
Support is a price zone where a falling stock might turn up; resistance is where a rising stock might turn down [1]. In a New York Fed study of 1996-1998 currency data, rates bounced off published levels 60.8% of the time versus 56.2% for arbitrary levels [2].
Key points
- Support is where price might turn higher; resistance is where it might turn lower [1].
- Levels are zones, not exact prices, and they break; a broken level can switch roles [1].
- In a New York Fed study of 1996-1998 data, exchange rates bounced off published levels 60.8% of the time versus 56.2% for arbitrary levels [2].
- Researchers call chart reading highly subjective, which is why two people can draw different lines on the same chart [5].
- A level is a description of past trading, not a buy or sell signal.
On this page
What are support and resistance?#
CME Group's technical analysis course defines support as a level where price might reverse and move higher, or a level that slows the momentum of price moving down. Resistance is the mirror image: a level where price might reverse and move lower, or that slows a rise [1]. A Federal Reserve Bank of New York paper uses a classic trader definition: support is an area under the market where buying interest is strong enough to overcome selling pressure [2].
Notice the word "might" in both definitions. Support and resistance describe where trading has clustered before. They do not promise what happens next. CME also stresses that the levels do not hold to the penny; they are zones [1]. You will see them drawn on the same price charts covered in how to read a stock chart.
The two ideas side by side:
| Feature | Support | Resistance |
|---|---|---|
| Where it sits | Below the current price | Above the current price |
| What traders expect | A fall might slow or turn up | A rise might slow or turn down |
| Who is assumed to be active | Buyers outweigh sellers | Sellers outweigh buyers |
| After a clean break | Can become resistance | Can become support |
Definitions and role reversal from CME Group [1]; the buyers and sellers framing from the New York Fed paper [2].
How do traders find support and resistance levels?#
There is no single formula. CME Group lists four common ways to spot levels [1]. Here they are as steps, plus one habit worth adding:
- Mark previous highs and lows
Look for prices where the stock turned before. CME notes that markets tend to pause at previous highs and lows [1].
- Check round numbers
A trader text quoted by the New York Fed says round numbers often act as psychological support or resistance [2].
- Add a moving average
CME lists moving averages as one way to spot levels [1], and traders often compare price with them [3]. See moving averages explained.
- Draw a trend line
Connect rising lows (or falling highs) with a straight line. CME lists trend lines as a fourth method [1].
- Widen the line into a zone
Shade a band a little above and below the line, because levels do not hold to the penny [1].
Some quote sites also print calculated levels. Investing.com's technical page, for example, has a pivot points table with columns labelled S1 to S3 (supports) and R1 to R3 (resistances) under five different methods [4]. Different methods give different numbers, which is a useful reminder that these levels are constructed, not discovered.
What happens when price breaks a level?#
Levels can break. CME describes a common chart-reading idea called role reversal: when price breaks through support or resistance, support becomes resistance and resistance becomes support [1]. The flow below uses a hypothetical stock to show the sequence traders watch for.
The same sequence can fail at any step. A break can reverse the next day, and a pullback can slice straight through the old level. That is why the wording matters: traders read a level as support; the market has not promised anything.
Do support and resistance levels actually work?#
One careful test is a paper by Carol Osler published by the Federal Reserve Bank of New York. She took support and resistance levels published daily by six firms for the mark, the yen and the pound against the U.S. dollar, from January 1996 to March 1998 [2]. Then she compared how often exchange rates bounced off those levels with how often they bounced off arbitrary levels.
So the published levels did carry some information: rates bounced quite a bit more often than chance would suggest, and the edge was still there five days after publication [2]. But the details are humbling. None of the firms correctly judged which of their own levels was more likely to hold, the firms did not agree much with each other, and the paper left open whether anyone could profit from the bounces on a consistent basis [2]. The data also come from currencies in the 1990s, not U.S. stocks today.
A separate academic study of U.S. stocks from 1962 to 1996 tested patterns such as head-and-shoulders and found that several technical indicators provide incremental information and may have some practical value, while calling technical analysis highly subjective, with shapes on charts often in the eyes of the beholder [5].
Why might a level hold at all?#
Osler's paper names two possible explanations. One is clustered order flow: many orders sitting at similar prices. The other is self-fulfilling prophecy: if enough traders believe a level matters and act on it, their orders can make it matter [2]. The trader text the paper quotes adds that traders think in round numbers, which often act as psychological support or resistance [2].
Both explanations depend on other people's behavior, which can change without warning. A level that held three times can fail on the fourth.
What are support and resistance not?#
They are not buy or sell signals, and they are not a forecast. The SEC reminds investors that past performance cannot predict how a strategy will perform in the future [6]. A line on a chart summarizes where trading happened; whether to own the stock is a separate question about the company, your goals and your risk.
They are also not a safe place for a tight stop. If you put a stop order just under support, remember that the SEC notes a stop can be activated by a short-term fluctuation, and the fill may differ from the stop price in a fast-moving market [7].
Mistakes beginners make with support and resistance#
- Treating a line as an exact price
CME says levels do not hold to the penny [1]. Draw a zone and expect price to poke through it.
- Buying just because price reached support
A level is a description of past trading, not a reason to buy. Roughly 4 in 10 hits on published levels in the New York Fed study did not bounce (calculated from [2]).
- Drawing lines until the chart agrees with you
Chart reading is highly subjective [5]. Decide your method before looking for the answer you want.
- Ignoring the time frame
A level on a 5-minute chart and a level on a weekly chart describe very different amounts of trading. Say which chart you mean.
- Setting a stop exactly at support
Short-term swings can trigger it and the fill can be worse than the stop [8].
Frequently asked questions#
Is support and resistance the same as a pivot point?
Not quite. Pivot points are levels a quote site generates with named methods; investing.com shows five (Classic, Fibonacci, Camarilla, Woodie's and DeMark's), in columns labelled S1 to S3 and R1 to R3 [4]. Support and resistance in the wider sense are usually drawn by hand from past highs, lows, round numbers or trend lines [1].
How many times does a level need to hold to count?
There is no official rule. The sources we cite describe where traders look for levels, not a required number of touches. Treat any count you read as a rule of thumb, not a test.
Do support and resistance work for long-term investors?
They describe price history, which can help you read a chart. They say nothing about a company's earnings, debt or value, which matter more for a long holding period. Past performance cannot predict future results [6].
What does it mean when resistance becomes support?
After price breaks above a resistance level, traders often watch whether pullbacks stop near that old level. CME calls this role reversal [1]. It is a tendency traders look for, not something that always happens.
The bottom line#
Support and resistance are a shared vocabulary for describing where a stock has paused before. Draw them as zones, name the time frame, and remember the evidence: in the New York Fed study of currencies, rates bounced off published levels 60.8% of the time versus 56.2% at arbitrary levels, and none of the six firms could judge which of its own levels was more likely to hold. Use them to read a chart, not to decide whether to buy. Next, see how they combine with candlestick charts and read our risk disclosure.
Sources
- Support and Resistance.
- Support for Resistance: Technical Analysis and Intraday Exchange Rates.
- Understanding Moving Averages.
- Apple Inc (AAPL) Technical Analysis - Investing.com.
- Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation.
- Investor Bulletin: Performance Claims.
- Stop Order | Investor.gov.
- Stop Orders: Factors to Consider During Volatile Markets.
Education only. This page is not investment, tax or legal advice. Stocks can lose value. See our risk disclosure.
