What Is Resistance?
Let me tell you directly: resistance is one of the core elements in technical analysis, right alongside support. It's essentially a price point or zone above the current market level that caps the upside for an asset. This is where selling pressure builds up over time, stopping any further advance in price.
Resistance might show up as a single point, like the day's high or an hourly peak, or it could be a broader zone, say spanning $0.50 to $1.00. In a zone, the price might poke through slightly during tests, but it ultimately gets pushed back, keeping the resistance intact. Sometimes, this indicates heavy supply in that area, which could even signal a reversal downward.
You'll find resistance on any chart timeframe. A longer one, like daily or weekly, points to significant multiday levels, while shorter ones, such as hourly or 30-minute charts, highlight minor resistances that day traders might exploit.
Key Takeaways on Resistance
A resistance level is that price point or zone an asset struggles to break above in the given period. It can widen to several points from repeated failed breaks, forming a zone that pushes prices lower. Trendlines offer a straightforward way to spot these areas, though other mathematical tools work too.
These levels matter for practical reasons: they guide where to set stops for shorts, take profits on longs, or enter longs on a breakout.
How Do Supply and Demand Affect Resistance?
Demand drives an asset higher by soaking up available supply. Liquidity, the balance of supply and demand at any moment, influences price swings—high liquidity keeps movements in check, while low liquidity can cause sharp gaps.
Demand often stems from macro news, like Fed comments or earnings reports. But after gains, demand can fade, forming a top that becomes resistance. Supply sources include take-profit selling near resistance or option holders defending positions by dumping shares. Negative news can also trigger shorts, solidifying resistance.
Resistance Is Made to Be Broken
In technical analysis, you identify resistance points or zones that get tested during uptrends. If momentum is strong enough, it breaks, drawing in breakout buyers and triggering stop-loss buys above it, fueling further upside.
Post-break, sellers often retest the level from below. If it holds as new support, the breakout is confirmed. This follows the polarity principle: broken resistance turns to support, and vice versa. The significance depends on the timeframe—a daily break is more bullish than an hourly one.
Trading Using Resistance
Once you spot resistance, say at $105, you might short sell approaching it or take profits on longs there, adding supply that reinforces it. Shorts placed ahead will cover when the drop ends.
As price tests resistance, filled take-profit orders reduce supply, and covered shorts do too. Shorts often place buy-stops above for safety. If it breaks, those stops trigger demand, and breakout traders pile in, pushing prices higher.
Identifying Resistance Levels with Trendlines
Trendlines are a strong tool for reviewing historical prices and pinpointing resistance. Take an hourly NVIDIA (NVDA) chart: a top forms at 220.00/50, breaks, leading to 230.00/50, which holds and creates a double top. Later, 220.00/50 acts as a pivot, serving as both support and resistance, embodying polarity.
On a daily NVDA chart, double tops signal potential downturns, horizontal trendlines hold lows, and breaks above major resistance like $190 lead to channels up to $230, where another double top forms. Notice how levels like 140, 190, and 230 are psychological big figures that attract attention as resistance zones.
Identifying Resistance Levels with Trading Systems
Various technical tools based on math can highlight resistance, including simple and exponential moving averages (favorites are 20, 50, 100), Ichimoku Clouds, and Bollinger Bands.
Consider a daily NVDA chart with Bollinger Bands: set at two standard deviations from a 20-day moving average, the upper band caps advances over weeks, providing a dynamic resistance for taking profits, while the middle average shows the trend.
Frequently Asked Questions
What is resistance? It's a price point or zone limiting gains due to excess supply over demand.
How do I identify resistance levels? Use chart analysis with tools like key highs, trendlines, moving averages, Bollinger Bands, and Ichimoku Clouds.
How do I trade with resistance levels? It varies: short below resistance expecting a hold, place buy-stops above for breaks, buy on breakout, or sell longs near it for profits.
What is the polarity principle? Once resistance breaks, it becomes support, often tested quickly to confirm the move.
The Bottom Line
Resistance forms when prices can't advance past a point or zone. It appears on any chart, with longer-term ones more influential. Identify it via trendlines, horizontals, moving averages, or Bollinger Bands.
For trading, you can buy into resistance for a potential break, enter post-breakout, or short expecting it to hold. When prices near resistance, pay attention—it's where opportunities arise.
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