What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community.

Resistance level

Expanded Definition

The most basic terms used in Technical Analysis are support and resistance.

Resistance is the term used for the price at which a stock begins a downturn, i.e. a peak level. For example, one could determine the support and resistance levels of a stock by the 52-week high and low prices. This would establish a band of trading for that stock. A technically inclined investor may sell off at the resistance level, and, enough selloffs at this point makes it difficult for the price to exceed that price point. In other words, the stock price runs into "resistance" at a certain price point due to profit taking by those who bought in at lower prices. Hence the name "resistance."

It's worth noting that if resistance were always dependable, stocks would never trade out of their banded ranges. But every day on the stock market, stocks hit new highs and lows. Thus, resistance is more a trading term used primarily by people looking at the stock market in the shorter term. And we have rarely ever met or seen a resistance or support level that wasn't broken -- understanding and anticipating WHY, well ay, there's the rub.

Related Fool Articles

Related Terms

Recent Fool Article