Support Level

Support is a price level where a stock or other security has historically attracted enough buying interest to halt price declines. When prices fall to support, buyers emerge in sufficient quantity to absorb selling pressure, often causing prices to bounce. Technical analysts watch support levels closely for trading opportunities and risk management. Support forms through various mechanisms. Previous lows attract buyers who see them as bargain prices. Moving averages provide dynamic support that rises over time in uptrends. Round numbers have psychological significance. Old resistance levels, once broken, often become new support as former sellers become buyers. When a stock approaches support, several outcomes are possible. It might bounce and rally, confirming the support level and potentially beginning a new uptrend. It might consolidate around support as buyers and sellers reach equilibrium. Or it might break below support, a potentially bearish signal often triggering additional selling. Traders use support levels strategically. Some buy when prices approach known support, betting on a bounce. Others wait for confirmed breaks below support to initiate short positions or sell existing holdings. Stop-losses are often placed just below support levels to limit downside if the level fails. The strength of support increases with the number of times it's been tested and held, the recency of its establishment, and its significance (major round numbers and prior important lows matter more than arbitrary levels). Volume during tests of support helps assess strength - high volume bounces suggest strong buying interest. Breaking support is significant because it suggests the supply/demand balance has shifted. What was seen as cheap becomes seen as still too expensive. Prior buyers become potential sellers if prices return to their purchase price. This is why broken support often becomes resistance. Understanding support helps investors identify buying opportunities, set stop-losses appropriately, and gauge the strength of trends.