Support and Resistance
A price zone where the stock tends not to fall through is support, and one where it tends not to rise past is resistance — zones formed where many people's memories and orders gather.
There is no set formula. A price zone where the stock has bounced back several times in the past is read as support, and one where it has been blocked several times as resistance.
If the price often bounces near a support line, it means many people see that price zone as a floor.
In plain terms
Throw a ball at the floor and it bounces up. A stock likewise has zones where, once it comes down to a certain price, it keeps bouncing back up; the price zone playing that "floor" role is called support.
Conversely, a price zone that acts like a "ceiling," where the stock keeps getting blocked on the way up and comes back down, is called resistance. Think of it as the point where people crowd in saying "I'd buy at this price" or "I'd sell at this price."
What it tells you
The real reason support and resistance actually work is not that the price itself holds some power, but that many people look at the same line and act similarly at that price. In other words, the line on the chart doesn't move the market — people's memories and orders create the line.
So support and resistance help you gauge "where attention is likely to gather next." When resistance is broken to the upside (a breakout) or support gives way to the downside (a breakdown), it is often seen as a moment when the prior consensus changes.
Formula
There is no set formula. A price zone where the stock has bounced back several times in the past is read as support, and one where it has been blocked several times as resistance.
What high or low means
If the price often bounces near a support line, it means many people see that price zone as a floor. Conversely, if it is often blocked at a resistance line, it means many people find that price hard to accept.
When resistance is broken strongly to the upside, that line sometimes turns into support this time around (a role reversal). That said, it doesn't always happen just because a line was broken once.
There's a point that runs counter to intuition. Support and resistance lines so famous that everyone knows them often do not work cleanly. Because many people place stop-loss or limit orders at that price, large investors may deliberately push slightly past the line to trigger those orders and then let the price come back — a "false breakout" that happens often.
Support and resistance are not lines measured with a ruler, but "rough zones." Different people draw them differently, so they are not objective.
When big news comes out or a strong trend continues, past price zones are easily ignored. Support and resistance are closer to inertia that works when nothing major happens, not solid walls that block price. They also look only at price movement, so they are unrelated to a company's value, and by themselves they are not a signal to buy or sell.
Like Dow 10,000 or a neat round price for Bitcoin, "round numbers" with no particular basis often act as strong support or resistance. That's because many people's eyes and orders converge on that number.
This shows well that support and resistance are not magic hidden in the price, but something like a "promise" that people's attention creates on its own by gathering in one place.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see SEC-filing-based financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.