This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Support and Resistance: Technical Analysis 101

Fundamental investors often have difficulty coming to terms with the idea that past prices can have an impact on future prices. But as anyone who has ever owned a stock can probably attest, watching your position change in value is hard to ignore. It's naive to think that those past prices (such as investors' entry prices) don't have an impact on when they ultimately choose to sell.

How to Spot Support and Resistance Levels

Generally, there are three ways that technical traders determine support and resistance levels: intermediate reversals, round numbers and moving averages.

The most common way to find support or resistance levels is by looking at intermediate reversals, or the points where trends have turned around and changed direction in the past. By connecting those peaks, you can draw a support or resistance line that restricts a stock's price action. These types of support and resistance can be either horizontal (at a set price level) or sloping trends.

Must Read: Does Technical Trading Really Work?

Because investor psychology ultimately sets the market, round numbers can also act as important support and resistance levels. That's because when a stock approaches a round number, such as $10 or $100, investors have preconceived notions that the stock may be getting "expensive" or "cheap," prompting them to sell or buy shares accordingly. This can lead to broken trends at these prices.

Moving averages are also important indicators of support and resistance levels. Because they represent the average prices paid by investors for a given issue over a certain period, the psychological impact of a moving average can be tangible. When it comes to picking the appropriate moving average, some experimentation is sometimes required to find the moving average that best restricts price action. 

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
AAPL $95.18 1.64%
FB $117.43 -0.96%
GOOG $692.36 -0.84%
TSLA $232.32 -3.92%
YHOO $36.01 -1.42%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs