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Support and resistance
What is a Support level
A support level is a support that a dropping price finds as it is going down. In a support level scenario, the price will bounce back up instead of breaking through.
What is a Resistance level
A resistance level is a resistance that a rising price finds as it is going up. The price in a resistance scenario will bounce back down instead of continuing its uptrend direction.
When a support level is broken it may turn into resistance.
About support and resistance
The concept of support and resistance is used by traders and it refers to the price levels that are likely to act as barriers in order to avoid the price of an asset getting pushed in a specific direction. The resistance lines are horizontal lines that start at an extreme price peak pointing horizontally into the future. On the other hand, support lines are again horizontal lines that start at an extremely low and also points towards the future on the time axis.
Provided that the most recent peak is exceeded and new peak levels are achieved, an uptrend continues. When past lows are broken, maintaining a series of low lows and higher lows, a downtrend continues.
The previous support often turns to resistance and resistance turns to support. Additionally, support or a resistance line tends to become more important and breaks higher or lower than these lines, it acquires more credibility as the number of price extremes that can be connected by a single line increases.
Provided that the price pushes higher than the resistance levels and holds above past support, the uptrend will remain unharmed. this counts also for the bear trend, where the downtrend remains unharmed as long as the price falls under the support levels and falls to rise over past resistance levels.
A downtrend (bearish) reversal takes place when the price breaks through the most recent support after falling to rise above most recent resistance. On the other hand, an uptrend reversal takes place when the price breaks through the most recent resistance after holding above the most recent support.