Resistance

Price level where selling pressure tends to halt an advance.

Resistance is a concept in technical analysis that refers to a price level or zone where an asset's upward price movement tends to stall or reverse. This occurs because a concentration of sellers, or a lack of buying interest, creates a supply of the asset that overcomes the demand. As the price approaches this level, market participants who bought at lower prices may look to lock in profits, while short-sellers may enter the market, creating a temporary ceiling. Traders identify resistance levels by looking at historical price charts and finding points where the price has previously peaked and reversed downward. These levels can be horizontal lines connecting multiple peaks, or they can be dynamic, such as moving averages or trendlines. The more times a price tests a resistance level without breaking through, the stronger and more significant that resistance is considered to be. Investors and traders use resistance levels to make decisions about when to sell an asset, set profit targets, or place stop-loss orders. A common pitfall is assuming a resistance level will always hold; if buying pressure is strong enough, the price can break through the resistance. When a breakout occurs, the old resistance level often flips and becomes a new support level.

Stock XYZ rises to $50 three times over a six-month period, and each time it reaches $50, selling pressure increases and pushes the price back down to $42. A technical analyst identifies $50 as a strong resistance level. If an investor owns the stock and expects this pattern to continue, they might place a limit order to sell their shares at $49.50 to secure profits just below the resistance line.