Support and Resistance are the basis of most technical analysis chart patterns – whether you trade forex, commodity futures, options, stocks, or anything else in the trading world!
Support is a level at which bulls (buyers) take control over the prices and prevent them from falling lower. You can think of this as a glass floor level that you will see pop up on charts over and over again.
Resistance is the point at which bears (sellers) take control of prices and prevent them from rising higher. You can think of resistance as your glass ceiling. The price at which a trade takes place is the price at which a bull and bear agree to do business. It represents the consensus of the two parties expectations.
Support levels indicate the price where the majority of investors believe the prices will move higher. When a support level is broken it becomes a new resistance level. Resistance levels indicate the price at which investors think prices will move lower. When a resistance level is broken it becomes a new support level. At major support and resistance levels, at times you will get what is called “noise”. “Noise” is the erratic pricing outside bases and tops, and is normal trading activity.