Support and resistance: why they sometimes work
· beginner
Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
A level is a price at which movement repeatedly stalled or reversed.
Why they appear
Not because the price has a memory. Because the participants do.
Someone who bought at a previous low and made money is inclined to buy there again. Someone who missed it waits for a return. Someone who bought at the high and ended up down is ready to exit if the price comes back to their entry — Anchoring: why the purchase price keeps influencing decisions.
All three groups place orders around one level, and it becomes observable.
Round numbers
A separate category: orders cluster on round values simply because they are convenient to name. The mechanism is the same — human behaviour rather than a property of the asset.
How investors use them
Not to forecast direction but to choose the price of a limit order once the decision to buy has been made — Market and limit orders: what speed costs you.
And to judge how far the price has travelled from the area where trades happened: movement through empty space can be fast in both directions.
What not to do
Base a decision on a level alone. A level says nothing about the company's business, about interest rates, or about whether the reason you hold the security has changed.
Related: The limits of technical analysis.
Related instruments
Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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