Resistance & Support

Resistance & support are two important concepts in the stock market that refer to levels at which a stock's price experiences difficulty in advancing or declining further.

What is Resistance?

Resistance, in simple terms, refers to something that opposes. Here the prices tend to encounter difficulty rising above as, at this point, there is maximum selling or supply is the most. This level is determined by the highest price at which the stock has traded in the recent past. When a stock's price reaches resistance, it may struggle to move higher and potentially experience a price decline.

For example, you can see a bold blue line on the chart at a price level of 716. In April 2022, June 2022, and finally, in August 2022, the stock price reached that level daily. After testing the price level twice, it finally gave a breakout in August 2022, after which the stock went up to Rs.1062 level, which is its lifetime high. Then it faced resistance because the supply was maximum and people started booking their profits.

Note: The line which was earlier acting as resistance will now act as support, which means the price won’t go beyond that level, and if it gives a downside breakout price will go to the next support level.

What is Support?

Support is just the opposite of resistance, which refers to a level at which a stock's price tends to find support and may struggle to fall below. This level is determined by the highest demand and the lowest price at which the stock has traded in the recent past. When a stock's price reaches support, it may bounce back and start to rise again.

For example, in the above chart of the same stock, we have marked the support zone level at Rs.508; you can see whenever the price reached that level, the price bounced back to create a new high.

Traders and investors can use both resistance and support levels to make decisions about buying and selling a stock. If a stock's price is approaching a resistance level, it may be the best time to book your profits, while if it is coming to a support level, it may be the best time to take a long position (buy). These levels can also be used to set stop-loss orders to limit potential losses.

However, in practical, the Resistance and Support are not exact lines, and they exist as an area or zone. So the price may resist or bounce from that area or zone.