In technical analysis, support and resistance is a concept that the movement of the price of a security will tend to stop and reverse
at certain predetermined price levels. These levels are denoted by multiple touches of price without a breakthrough of the level.
A support level is a level where the price tends to find support as it falls. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has breached this level, by an amount exceeding some noise, it is likely to continue falling until meeting another support level.
A resistance level is the opposite of a support level. It is where the price tends to find resistance as it rises. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has breached this level, by an amount exceeding some noise, it is likely to continue rising until meeting another resistance level.
Proactive support and resistance methods are 'predictive' in that they often outline areas where price has not actually been. They are based upon current price action
that through analysis has been shown to be predictive of future price action. Proactive support and resistance methods include Measured Moves, Swing Ratio Projection/Confluence (Static (Square of Nine), Dynamic (Fibonacci)), Calculated Pivots
, Volatility Based, and Trendlines.
Reactive support and resistance are the opposite: they are formed directly as a result of price action or volume behaviour. They include Volume Profile
, Price Swing lows/highs, Initial Balance
, Open Gaps, certain Candle Patterns (e.g. Engulfing, Tweezers), OHLC, Moving averages, VWAP
and Market Profile (VAH
The more often a support/resistance level is "tested" (touched and bounced off by price), the more significance given to that specific level.
If a price breaks past a support level, that support level often becomes a new resistance level. The opposite is true as well, if price breaks a resistance level, it will often find support at that level in the future.
Traditional support and resistance levels are represented as horizontal lines on a chart whereas trendlines are referred to as diagonal support and resistance lines.
Source (with edits): https://en.wikipedia.org/wiki/Support_and_resistance
However please note
an opposing view to the usefulness of support and resistance lines here in the Random Line
Theory thread: https://futures.io/traders-hideout/7...ne-theory.html
and also the Adam Grimes Webinar thread: https://futures.io/traders-hideout/3...am-grimes.html
For more on support and resistance see also: http://www.investopedia.com/articles...cal/061801.asp