What are support and resistance?
Support levels are prices where buyers have shown or are likely to show strength. Resistance levels are prices where sellers are likely to be strong.
Support levels essentially give the market a 'floor', since they are areas where buyers tend to be strong. If the price falls to a strong support level, traders should expect buyers to step in and drive the price up, or at least keep it from moving any lower.
Resistance levels perform the opposite function of support, which
provide a 'ceiling' to the market. If the price rises to a strong
resistance level, short sellers should be expected to enter the market
and traders in long positions may cover their positions to take profits.
This combination of selling pressure will
often drive the price lower.
When a price breaks through a resistant level, it often triggers a large number of stop orders and makes for even greater buying power. Often the stronger the resistant level, greater the number of stops that are triggered and the larger the move above resistance.