Support and Resistance: How to Find Them on a Chart
On any stock chart you will find prices the stock keeps coming back to, from below or from above. Those areas are called support and resistance, and finding them well starts with seeing them as zones, not lines drawn to the piaster.
What you will learn
Understand what support and resistance are and why they form.
Mark a support and a resistance zone on a chart with clear steps.
Know why a zone can break, and what that changes.
The lesson as a short video · 24 seconds · Watch on YouTubeIn this lesson
SupportA zone below the price where the stock fell before and enough buyers appeared to stop the fall.
ResistanceA zone above the price where the stock rose before and enough sellers appeared to stop the rise.
Why do they form? Because people remember prices. Someone who missed buying at a price may wait for it again. Someone who bought high and is losing may sell as soon as the price returns there, to get out even. None of this is guaranteed, but when it repeats it leaves a clear mark on the chart.
How to find them
Start with a clear chartA daily chart over enough time, say six months, so you can see more than one turn.
Find the turning pointsThe places where the price stopped and reversed, from below and from above.
Group nearby pointsIf three points sit close together, draw a zone from the lowest to the highest of them.
Weigh the zoneThe more times the price returned to it, with more volume and more recently, the clearer it is.
Three turns from below make a support zone, three from above a resistance zone. The circles mark the turns.
ExampleIn this chart of an invented stock, the price fell three times to between 18.10 and 18.20 and bounced, so the support zone is 18.00 to 18.35. It rose three times to between 21.45 and 21.55 and fell back, so the resistance zone is 21.30 to 21.60. The last price is 19.40: about 5.4% above the top of support and about 9.8% below the start of resistance.
When a zone breaks
Support and resistance are not walls. Any zone can break, especially with new news or a shift in the whole market's mood. When resistance breaks clearly, the same zone may start acting as support if the price comes back, because those waiting to sell there have already sold. The reverse happens with support. Telling a real break from a false one has its own lesson.
1Before: the price turns back below 21.30
2It closes clearly above the zone, say at 22.10
3Afterwards the same zone may act as support if the price returns
A broken resistance can become support, but that is a possibility, not a rule.
Watch outDo not draw a line to the piaster and expect the price to touch it exactly. Prices often poke a little past a zone or stop a little short of it. And if you find yourself drawing ten lines on one chart, check each one: did the price really return to it several times?
Draw a zone yourself
Open the daily chart of any stock and use the horizontal-line tool to mark a support zone and a resistance zone. Count how many times the price returned to each.