What Is Support and Resistance? How Chart Levels Are Drawn and Their Limits

Support is a price level where a falling market has paused or turned before, and resistance is one where a rising market has; both are read from past prices.

Support and resistance are among the oldest ideas in chart reading, and among the easiest to draw: a horizontal line under a run of lows, another over a run of highs. This page covers what the two terms mean, the supply and demand story usually told about them, how the levels are drawn in practice, a worked example on a hypothetical chart, the idea that a broken level changes roles, what research has found about the levels and about the orders that sit near them, and the limits of the concept. It is descriptive throughout.

What the two words mean

StockCharts' ChartSchool, a long-running reference for chart analysis, defines support as the price level at which demand is thought to be strong enough to prevent the price from declining further, and resistance as the price level at which selling is thought to be strong enough to prevent the price from rising further. The words "is thought to be" carry weight: a support or resistance level is a description of where the price turned in the past, combined with a belief about why.

The two are mirror images. In ChartSchool's description, support can be established from previous reaction lows, the points where a decline stopped and turned, and resistance from previous reaction highs. Support is usually below the current price and resistance above it, although a price can trade at or near either.

The supply and demand story

The explanation usually given is about supply and demand at a price. In ChartSchool's account, as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers less inclined to sell, and the reverse happens as the price advances towards resistance. A second strand runs through the people who traded at a level before: holders who bought near a level and then watched the price fall below their cost may sell when the price returns there, to get out near what they paid. ChartSchool calls that selling overhead supply.

This is a story about behaviour, not a law. Nothing stops a price from passing through a level, and ChartSchool says plainly that support does not always hold and resistance does not always hold. When a level gives way, the usual reading is only that the balance between buyers and sellers at that price has changed.

How the levels are drawn

There is no single formula for support or resistance, which is the main way they differ from indicators such as a moving average or RSI. Common ways of choosing a level include:

• Prior reaction lows and highs. Several turns near the same price, for example three lows within a few cents of each other.
• Zones instead of lines. ChartSchool notes that technical analysis is not an exact science and that price movements can briefly dip below support or rise above resistance, so some analysts mark a band of prices rather than a single line.
• Round numbers. Whole-dollar or round-figure prices such as 100 or 50, where one study of a currency dealing bank's orders, discussed below, found orders clustered.
• Moving averages and channels. Some readers treat a moving average, or a channel built from the highest high and lowest low of recent bars, as a support or resistance line that moves over time.
• Volume at price. A level where a large share of trading took place, measured by how much volume changed hands at each price.

Different methods, and different people using the same method, can draw different levels on the same chart.

A worked example on a hypothetical chart

Take a hypothetical stock that has traded sideways for five months. Its three lowest points in that time were 40.10, 40.40 and 39.90, each followed by a move higher. Its two highest points were 47.80 and 48.00, each followed by a move lower.

A reader drawing support would mark the area from about 39.90 to 40.40, a zone half a dollar wide, rather than one exact price, because the three lows do not line up exactly. Resistance would be marked around 47.80 to 48.00. The range between them is about 8 dollars, or 20 percent of the lower edge.

Now suppose the stock closes at 38.50, well below the zone. In the vocabulary of support and resistance, support has been broken: the price has gone through a level where it had turned three times before. Suppose the price later climbs back to about 40 and turns down there. Readers would describe the old support zone as now acting as resistance, the role reversal covered in the next section.

None of these descriptions tells what the stock does next. The closes, the lows and the zone are facts about the past; "support" and "resistance" are names given to them.

When a level changes roles

ChartSchool describes a principle that support can turn into resistance and resistance into support. Once the price breaks below a support level, that level can become resistance if the price returns to it, because the holders who bought there may sell to get out near their cost. Once the price breaks above resistance, that level can become support. The same caution applies as before: the role reversal is a pattern people look for, and it does not always appear.

What research has found

Two studies by Carol Osler of the Federal Reserve Bank of New York look at the idea in currency markets.

In a 2000 article, Support for Resistance, she tested the support and resistance levels that six firms active in the foreign exchange market published for their customers. The article reports strong evidence that those six firms' published levels helped predict where intraday exchange rate trends were interrupted, and also that their predictive power varied across the exchange rates and firms examined.

In a 2001 staff report, later published in The Journal of Finance, she looked at the stop-loss and take-profit orders placed with a large foreign exchange dealing bank. The requested execution rates of those orders were strongly clustered at round numbers, which are often used as support and resistance levels. That gives one mechanical account of why price behaviour around popular levels can differ from elsewhere: orders are waiting there. How those orders work is covered in what a stop order is.

Both studies cover currencies in a specific period, with orders and levels from particular firms. Lo, Mamaysky and Wang, who automated the detection of chart patterns on US stocks, found that several technical indicators provided incremental information, while describing chart shapes as often in the eyes of the beholder. None of these studies shows that a level on any given chart will hold, and past patterns need not repeat.

Drawing levels in Kresmion's charts

Kresmion's charting workspace has drawing tools for marking levels by hand on any chart it covers, including stocks, indices and crypto pairs. The Horizontal line tool draws a line across the whole chart at one price and labels it with that price. The Price level tool draws from a chosen bar to the right edge only, for a level that has mattered since a particular date rather than throughout. The Rectangle tool boxes a range of price and time, which suits a support or resistance zone.

Two indicators draw levels from the data instead of by hand. The Volume Profile indicator divides the price range of the bars loaded into bands, 24 by default, adds up the volume traded in each, and draws three horizontal lines: the point of control, the band with the most volume, and the high and low of the value area, which holds at least 70 percent of the volume by default. It needs volume data, so it draws nothing on markets whose bars carry none, such as spot currency pairs. The Donchian Channel draws the highest high and the lowest low of the last 20 bars by default, plus a midline between them, stepping as each new bar arrives. The charts open with an account, which is free during the beta.

A line drawn on a Kresmion chart is a drawing. It does not place an order or set an alert.

Honest limitations

Support and resistance are subjective. Andrew Lo, Harry Mamaysky and Jiang Wang, in a study of technical analysis, describe the presence of geometric shapes in historical price charts as often in the eyes of the beholder, and the same applies to choosing a level. A level is easier to see after the price has turned than before, which flatters the idea in hindsight. The levels depend on the timeframe, the range of history shown, and whether prices are adjusted for splits and dividends, so two charts of the same stock can show different levels. The research summarised above covers currency markets and specific firms, and its findings were mixed across currencies and firms. The example on this page is invented.

Key takeaways

Frequently asked questions

What is the difference between support and resistance?

Support is a level below the price where earlier declines stopped, and resistance is a level above it where earlier advances stopped. They are drawn the same way, from past lows and past highs, and the same level can act as one and then the other.

Does a support level stop the price from falling?

No. A support level describes where the price turned before. ChartSchool notes that support does not always hold, and when the price falls through it, the usual reading is that the balance between buyers and sellers at that price has changed.

Why do round numbers matter for support and resistance?

One explanation is where orders are placed. Carol Osler's study of a large currency dealing bank found that stop-loss and take-profit orders were strongly clustered at round numbers, which are often used as support and resistance levels. That describes order placement in one market; it is not a guarantee about any price.

Are support and resistance levels reliable?

Evidence is mixed and narrow. Osler's 2000 study found that published currency levels helped predict intraday trend interruptions, with results that varied across currencies and firms, and choosing levels involves judgement. This page makes no claim that any level will hold.

Can I draw support and resistance lines in Kresmion?

Yes. Kresmion's charting workspace has Horizontal line, Price level and Rectangle drawing tools, plus Volume Profile and Donchian Channel indicators that draw levels from the data. The charts open with an account, free during the beta, and a drawing does not place an order.

This page is information, not investment advice.

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Source: StockCharts ChartSchool, Support and Resistance, https://chartschool.stockcharts.com/table-of-contents/chart-analysis/support-and-resistance ; Carol L. Osler, Support for Resistance: Technical Analysis and Intraday Exchange Rates, Federal Reserve Bank of New York Economic Policy Review 6(2), July 2000, https://www.newyorkfed.org/research/epr/00v06n2/0007osle.html ; Carol L. Osler, Currency Orders and Exchange-Rate Dynamics, Federal Reserve Bank of New York Staff Report 125 (2001), https://www.newyorkfed.org/research/staff_reports/sr125.html ; Andrew W. Lo, Harry Mamaysky and Jiang Wang, Foundations of Technical Analysis, NBER Working Paper 7613 (2000), https://www.nber.org/papers/w7613 ; Kresmion chart engine (Horizontal line, Price level and Rectangle drawing tools; Volume Profile and Donchian Channel indicators). The chart in the worked example is hypothetical.

Kresmion Research.