Support and resistance
Also written Support · Resistance · Support level · Resistance level
Price levels where a move tends to pause or reverse — support where demand concentrates and forms a floor, resistance where supply concentrates and forms a ceiling.
In plain language
Support is a price at which buyers have repeatedly appeared in enough size to stop a fall. Resistance is a price at which sellers have repeatedly appeared in enough size to stop a rise.
The reason they exist is memory. People who bought at a level and watched the price fall often sell at break-even when it returns, creating supply at that price. People who watched a level hold and wished they had bought place orders there next time.
How it works
Three properties an analyst is expected to know:
The more times a level is tested, the more significant it is — each test represents real orders that were absorbed at that price.
Once broken, roles reverse. Resistance that is decisively breached tends to act as support afterwards, and support that breaks tends to act as resistance. The buyers who were waiting above are now sitting on a profit and defend the level.
Volume confirms the break. A move through a level on unusually high volume suggests genuine change in supply and demand; the same move on thin volume is often a false breakout that reverses within days.
A worked example
A bank share through a year:
| Period | Behaviour |
|---|---|
| Jan–Mar | Falls to Rs 840 three separate times and bounces each time |
| Apr–Aug | Trades Rs 840–Rs 960; sellers appear near Rs 960 on four occasions |
| Sep | Breaks Rs 960 on volume of 4.2 crore shares against a 90-day average of 1.1 crore |
| Oct | Falls back to Rs 965, holds, and resumes rising |
Rs 840 is support, tested three times. Rs 960 is resistance, tested four times. The September break came on roughly four times average volume, which is the confirmation. In October the old resistance at Rs 960 behaved as support — the role reversal.
A trader using this would place a stop-loss just below Rs 960 after the break, risking about 1% for a position taken because a year's worth of supply had been cleared.
Why NISM asks about it
Chapter 15 (Technical Analysis) covers support and resistance as foundational concepts, with trends, chart patterns and indicators built on them. Expect definitional questions and questions on what happens to a level once it is broken.
Common exam traps
- Support is a floor formed by demand; resistance is a ceiling formed by supply. Reversing the two is the most common error in the chapter.
- Levels are zones, not exact prices. A share that dips Rs 3 below a support and recovers has not broken it.
- Role reversal after a break is the expected behaviour, not an anomaly.
- Support and resistance describe probability, not certainty. Technical analysis assumes price already reflects the fundamentals — it does not claim to know why a level holds.
Check yourself
1.An intraday trader works out the day’s support and resistance levels from the previous session’s high, low and close. In the workbook’s table of support and resistance types, what is he using?
- a)Psychological levels
- b)Fibonacci levels
- c)Pivot points
- d)Moving-average levels
Show the answer
Answer: (c) Pivot points
The workbook’s table: pivot points are "calculated from previous period’s high, low, close" and are "generally used in intraday trading". That is exactly the trader’s method.
Psychological levels are "round numbers (e.g., Rs. 1,000, Rs. 10,000)" that "often act as barriers" — the example given is Nifty 25,000. Fibonacci levels are "derived from Fibonacci retracement ratios (23.6%, 38.2%, 61.8%)", measured from a swing high or low, not from one session’s prices. Moving-average levels are "dynamic support/resistance based on averages (e.g., 50-day MA)", illustrated by "price bouncing off 50 DMA".
The table’s other two types are horizontal (flat levels where price repeatedly reverses) and trendline (diagonal lines connecting higher lows or lower highs).
Where this is taught
- Series XV · Chapter 15: Technical Analysisintroduced here
- Series XXI-A · Chapter 3: Investing in Stocksintroduced here
Related terms
- ChannelTwo parallel trendlines, one through the highs and one through the lows, boxing price action into a range — traders trade within it, or watch for a breakout from it.
- Moving averageThe average price of a share over a rolling window, recalculated each session — it smooths away daily noise so that the underlying trend, and changes in it, become visible.
- Primary trendThe dominant, long-term direction of a market or stock — bull, bear or sideways — typically lasting a year or more, driven by macro-economic forces and investor sentiment.
- RSIA momentum oscillator scaled 0 to 100 that measures the speed and size of recent price changes — conventionally read as overbought above 70 and oversold below 30.
- Technical analysisForecasting price direction from past price and volume alone, on the assumption that everything worth knowing about a company is already in its price.
- MACDMoving Average Convergence Divergence — the gap between the 12- and 26-period EMAs, read against its own 9-period EMA, to track shifts in momentum rather than price.
- Dow TheoryCharles Dow's six-tenet framework: the market discounts everything, moves in primary, secondary and tertiary trends, must be confirmed by indices and volume, and trends persist until clearly reversed.
- ADXAn oscillator running from zero to 100 that measures how strong a trend is, without indicating whether that trend is up or down.
- Ascending triangleA chart pattern of rising swing lows against one flat resistance level — a bullish continuation pattern signalling that buyers are gradually overpowering sellers before a breakout.
- Bar chartA technical-analysis chart showing each period's Open, High, Low and Close as a single vertical bar with side ticks — used to study price range and volatility.
- Congestion areaA price range where a stock trades repeatedly for an extended period, typically several weeks, before eventually breaking out upward or downward.
- Piercing PatternA bullish two-candlestick reversal pattern near the bottom of a trading range — a red candle followed by a green candle whose body covers at least half the red candle's body.
- Role reversalThe technical-analysis principle that once a support level is broken it tends to become resistance, and once a resistance level is broken it tends to become support.
- HammerA bullish reversal candle that appears after a price decline — a small real body with a lower tail at least twice that body — valid only once the next candle confirms by moving the price up.
- Dark Cloud CoverA bearish two-candle reversal near the top of a congestion area: a bullish candle, then a gap-up candle that turns bearish and closes below the midpoint of the first.
- Flag and pennantContinuation patterns in which price pauses sideways after a sharp rally — in a rectangle (flag) or a small triangle (pennant) — before the original move resumes.