🎯 Support & Resistance Basics

Learn to identify key price levels that act as barriers to price movement - fundamental concepts needed before advanced pattern recognition.

📋 Prerequisites for This Article

Before learning support and resistance, you should have completed:

These key price levels will enhance your pattern recognition and trading decisions.

📖 Reading Time: 18 minutes
📊 Difficulty: Intermediate
🎯 Essential Concepts

🔍 Understanding Support & Resistance

Learn what support and resistance levels are and why they form in markets

Support and resistance are among the most important concepts in technical analysis. They represent price levels where buying or selling pressure creates barriers to further price movement.

🛡️ Support Levels

Support is a price level where buying interest is strong enough to prevent the price from falling further. Think of it as a "floor" that supports the price.

  • Price tends to bounce higher when it reaches support
  • Multiple bounces make the support level stronger
  • High volume at support often confirms its validity

🚧 Resistance Levels

Resistance is a price level where selling pressure is strong enough to prevent the price from rising further. Think of it as a "ceiling" that caps price increases.

  • Price tends to fall when it reaches resistance
  • Multiple rejections make the resistance level stronger
  • High volume at resistance often confirms the selling pressure

🏦 Indian Market Example: HDFC Bank

HDFC Bank has historically found support around ₹1,400-1,450 levels multiple times over the years. Each time the stock approached this level, buyers stepped in, creating a reliable support zone. Similarly, ₹1,800 has acted as resistance on several occasions.

📊 How to Identify Support & Resistance

Step-by-step guide to finding key price levels on your charts

Identifying support and resistance levels is a skill that improves with practice. Here are the basic methods:

📈 Historical Price Levels

Look for price levels where the stock has previously:

  • Bounced multiple times (potential support)
  • Been rejected multiple times (potential resistance)
  • Spent significant time in consolidation
  • Made previous highs or lows

📏 Round Numbers

Psychological levels often act as support or resistance:

  • Round numbers like ₹100, ₹500, ₹1,000
  • 52-week highs and lows
  • Previous closing prices of significant sessions

🍔 Indian Market Example: Jubilant FoodWorks

Jubilant FoodWorks has repeatedly found resistance near ₹4,000 - a round number that attracts profit-booking. The stock has attempted to cross this level multiple times but faced selling pressure, making it a clear resistance zone.

🎯 Key Identification Tips:

  • Look for at least 2-3 touches to confirm a level
  • The more touches, the stronger the level
  • Recent levels are more relevant than very old ones
  • Focus on closing prices, not just intraday spikes

🔄 Role Reversal: When Support Becomes Resistance

Understand how broken support levels become resistance and vice versa

One of the most important concepts in support and resistance analysis is role reversal - when a broken support level becomes resistance, or when broken resistance becomes support.

📉 Broken Support → New Resistance

When price breaks below a support level:

  • The old support level often becomes new resistance
  • This happens because trapped buyers want to "break even"
  • The previous support level becomes a selling area

📈 Broken Resistance → New Support

When price breaks above a resistance level:

  • The old resistance level often becomes new support
  • Previous sellers now see that level as good value
  • The breakout level attracts new buyers on pullbacks

🚗 Indian Market Example: Maruti Suzuki

In 2020, Maruti broke above long-term resistance at ₹8,000. After the breakout, whenever the stock pulled back to the ₸,000 level, it found support there. The old resistance had become new support through role reversal.

🚀 Basic Breakout Concepts

Learn how to use support and resistance levels for entry and exit decisions

Support and resistance levels provide excellent reference points for making trading decisions. Here are the basic concepts:

✅ Valid Breakouts

A valid breakout typically shows:

  • Price closes significantly beyond the level (not just touches)
  • Increased volume confirms the breakout
  • Price doesn't immediately reverse back
  • Follow-through price action in the breakout direction

❌ False Breakouts

Be wary of breakouts that show:

  • Low volume on the breakout move
  • Price quickly reverses back below/above the level
  • No follow-through in subsequent sessions
  • Breakout happens on a gap that gets filled

⚠️ Common Mistakes to Avoid

  • Acting on every minor break of support/resistance
  • Ignoring volume confirmation
  • Not waiting for closing confirmation
  • Chasing breakouts that have already moved significantly

💼 Indian Market Example: TCS

TCS often respects its support and resistance levels very well. In early 2023, the stock broke above ₹3,400 resistance with good volume. Traders who waited for the closing confirmation and volume support benefited from the subsequent upward move.

🛠️ Putting It All Together

A simple framework for using support and resistance in your investment decisions

Here's a systematic approach to incorporating support and resistance analysis:

📋 Daily Analysis Checklist

  1. Identify Key Levels: Mark important support and resistance on your charts
  2. Monitor Price Action: Watch how price reacts at these levels
  3. Volume Confirmation: Look for volume support at key levels
  4. Wait for Confirmation: Don't jump the gun on potential breakouts

🎯 Key Takeaways:

  • Support and resistance are psychological price barriers
  • Multiple touches make levels stronger
  • Broken levels often reverse their role
  • Volume confirmation is crucial for valid breakouts
  • Use these levels as reference points, not absolute rules

⚠️ Remember

Support and resistance analysis works best when combined with other technical tools you've learned: volume analysis, technical indicators, and overall trend direction. No single tool should be used in isolation.

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