Resistance

Resistance is a key technical analysis concept that refers to a price level where an asset struggles to move higher. It acts as a barrier where selling pressure tends to be strong enough to prevent further price increases.

How does resistance work?

• When the price approaches resistance, traders often start selling, causing the price to stall or reverse;
• If the price breaks above resistance, it may signal a potential uptrend continuation;
• Resistance levels can be identified using previous highs, trendlines, moving averages, or Fibonacci retracements.

As an example, if a stock consistently fails to rise above $100, that price level acts as resistance. Traders might set sell orders near this level, anticipating a reversal.

If the price breaks above resistance, it may signal the start of an uptrend, especially if accompanied by high trading volume. In such cases, the previous resistance level can become a new support level.

While resistance levels help traders identify potential price movements, they are not foolproof. Market factors like economic news and sentiment can override them. Therefore, traders use resistance alongside other technical indicators and risk management strategies for better decision-making.