Resistance Level

Resistance is a price level where a stock or other security has historically faced selling pressure strong enough to prevent further upward movement. When prices rise to resistance, sellers emerge in sufficient quantity to halt the advance, often causing prices to decline. Technical analysts closely watch resistance levels for trading signals. Resistance forms for various reasons. Previous highs attract sellers who bought at those prices and want to break even. Round numbers (like $50 or $100) have psychological significance. Moving averages can act as dynamic resistance. Old support levels, once broken, often become new resistance. When a stock approaches resistance, several outcomes are possible. It might reverse and decline, confirming the resistance level. It might consolidate, trading sideways as buyers and sellers battle. Or it might break through, a potentially bullish signal often called a "breakout." Volume during a breakout attempt helps confirm its validity - strong volume suggests genuine buying interest. Traders use resistance levels in several ways. Some sell when prices approach known resistance, taking profits before an expected reversal. Others wait for confirmed breakouts above resistance to enter long positions, betting the clearing of overhead supply opens room for further gains. Stop-losses might be placed just below resistance to limit losses if a breakout fails. The reliability of resistance levels increases with how many times they've been tested and held, how recently they were established, and how significant the price level is (major round numbers are more meaningful than arbitrary levels). However, no resistance is permanent - markets eventually break through any level given sufficient buying pressure. Understanding resistance helps investors set realistic price targets, time entries and exits, and gauge the supply/demand dynamics affecting their holdings. Combined with support analysis, it forms a foundation of technical analysis.