Support and resistance are the most fundamental concepts in technical analysis — they're the floor and ceiling that price bounces between. Support is a price level where buying pressure consistently steps in to prevent the stock from falling further. Resistance is a price level where selling pressure consistently caps the stock from going higher. These levels form because of collective market memory. If a stock bounced off $50 three times in the past six months, traders remember. When price approaches $50 again, buyers show up expecting the same bounce. That collective behavior creates a self-fulfilling prophecy — until it doesn't.

Identifying support and resistance is straightforward: look for price levels where the stock has repeatedly reversed direction. The more times a level has been tested (touched and held), the stronger it is. A support level that has held five times is more significant than one that held once. Round numbers ($50, $100, $200) naturally act as psychological support and resistance because humans are wired to anchor to clean numbers. Moving averages — especially the 50-day and 200-day — also act as dynamic support and resistance levels. Institutional traders place orders at these moving averages, which reinforces their power. You'll often see a stock fall to its 200-day moving average and bounce like it hit a trampoline.

The most important rule about support and resistance is what happens when they BREAK. When a stock breaks through resistance on strong volume, that old resistance level often becomes new support. This is called a 'role reversal.' Think about it: the traders who sold at resistance and got stopped out now see the stock above their level — they become buyers on any pullback to that level, turning former resistance into support. The reverse is true too — when support breaks, it becomes resistance on any attempt to rally back. Breakouts through major support or resistance levels on heavy volume are some of the most tradeable moves in the market.

Putting it into practice: draw horizontal lines on your chart at key support and resistance levels. When price approaches support, look for bullish signals (rising RSI, MACD crossover, high volume buying) to confirm the level will hold. When price approaches resistance, watch for bearish signals. If the stock breaks resistance on volume 50% or more above average, that's a legitimate breakout — not a fake-out. If it breaks on low volume, be skeptical. Some traders use support and resistance to set their entries, exits, and stop losses. Buy near support with a stop just below it — your risk is defined and your reward-to-risk ratio is favorable. That's how professionals manage risk at every level.