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What are support and resistance levels?

Support and resistance levels are fundamental levels that are considered by technical analysts. 

Essentially, support and resistance levels are prices at which the instrument in question is expected to find trouble crossing. Imagine you have a buy position on gold; the resistance level on gold would be a price level above its current price that the commodity has repeatedly hit in the past, but did not surpass, or did not surpass for a sustained period. It can be suggested that the commodity encounters ‘resistance’ at this point, regardless of the underlying factors that are causing this resistance. Generally, it is thought that a great number of traders (and/ or large institutions) have sell orders at prices matching these resistance levels. These sell orders help prevent the price of an asset from rising above that level. 

On the other hand, a support level would be a price level below its current price that the commodity has repeatedly hit in the past but did not fall below (or did not fall below for a sustained period). In this case, it could be presumed that traders with buy orders are waiting in the wings at these support levels. 

If you are holding a sell position in an asset, it can be helpful to think of the support and resistance levels in reverse. But this shift in perception shouldn’t alter your decision making extensively, as both levels effectively represent the same thing (a boundary at which you might expect the price to not cross) 

In respect to technical analysis, support and resistance may be drawn with horizontal lines or rectangles across the chart. These simple markings on the chart provide a clear visualisation of the levels at which traders might expect the price of an asset to bounce. 

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