Resistance is a price level at which a financial instrument’s price was unable to move above in previous attempts.
- Resistance levels are price levels where a financial asset could face potential selling pressure, also known as supply zones.
- Traders will often use resistance levels to place limit orders and stop losses.
- Often resistance is a horizontal level, although it can form on trendlines, technical indicators, and channels, among others.
What is a Resistance level?
Resistance levels are price levels at which the value of a financial instrument failed to move above in previous attempts. Most often resistance is at a horizontal level, although it does also form on trendlines, channels, some technical indicators, and fibonacci retracements. Resistance levels are a key factor when conducting technical analysis on a price chart.
Traders are provided with information that could help with entering and exiting the market while using resistance levels. If a trader is expecting the market to fall, they can place a stop loss at, or above a resistance level. Traders who anticipate a rise in an asset’s price can use resistance as profit taking levels.
Resistance levels often indicate a supply zone. It’s common for supply zones to be levels or areas in the market where selling pressure appears to be strong. These types of levels form when there are more sellers than buyers who push an asset’s price back lower.
Types of resistance levels
The most basic, and common resistance levels are usually found at horizontal levels, although there are more ways in which resistance can be formed. In the section below we have briefly covered a few of the most popular resistance levels traders use.
This type of resistance level generally falls under two categories; static and dynamic. Static levels are psychological levels often referred to as round numbers. A stock may find resistance at £10, £20, and £30 for example. Dynamic levels are formed when an asset’s price repeatedly fails to move above a certain price.
Trend line support
It is possible to draw a trend line when the price of an asset is moving down. A series of lower highs or ‘tops’ can be seen on a price chart during a down trend. These ‘tops’ can be connected by a diagonal line, known as a trend line. After a series of lower highs, a trendline can often act as a level of resistance that the price is unable to break above.
Using technical indicators such as moving averages is another way to find a resistance level. These indicators plot the average price of an asset over a specific time period. One of the most common moving averages is the 50 day MA. Traders and investors can use a moving average line as a resistance level, as an asset’s price will typically rise towards it before bouncing back lower.
Where can I learn more?
To learn more about resistance levels and technical analysis you can check out our free courses section. We also have stocks, cryptocurrency, and forex hubs where you can find up-to-date news and market analysis.
Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >