Resistance
Price ActionA price level where selling interest is strong enough to prevent further advance. The price tends to reverse downward when it reaches resistance.
What Is Resistance?
Resistance is a price level or zone where supply is expected to be strong enough to halt a rally. When the price rises to a resistance level, sellers step in because they consider the price too high or want to take profits, creating downward pressure.
Resistance levels form from prior highs, areas where the price reversed before, round numbers, moving averages, and Fibonacci extension levels.
Trading at Resistance
On GBP/USD, if the price failed to break above 1.2700 on two previous occasions, that level is resistance. When the price approaches 1.2700 again, traders look for bearish signals like a Shooting Star or Bearish Engulfing to enter short with a stop above the resistance zone.
Resistance that has been tested multiple times is considered strong. However, when resistance finally breaks, the move that follows can be explosive as trapped sellers cover positions and new buyers enter.
When Resistance Breaks
A confirmed break above resistance is a Breakout signal. Once broken, the former resistance often becomes new Support. Traders who missed the breakout watch for a pullback to the broken resistance level to enter long.
Like support, resistance is best treated as a zone rather than an exact price. The area might span 10-30 pips on a daily chart. Look for multiple price reactions within the zone to confirm its significance.
Related Terms
Support
A price level where buying interest is strong enough to prevent further decline. The price tends to bounce upward when it reaches support.
Pivot Points
A set of horizontal support and resistance levels calculated from the previous period's high, low, and close. The central pivot, along with S1-S3 support and R1-R3 resistance levels, helps traders identify potential turning points and target prices.