A resistance level is where the price of a asset does not break through and stops its upward ascent. It is the point where the price move approached a level and failed to continue. This is usually followed by a pullback. Traders and investors often look at this as a range where upward price moves end.
This can apply to any asset or security as historical data reveals trends that occur over time.
Resistance lines can often be drawn by connecting the highs over a certain period of time. These can be flat, downward, or upward sloping. They will often go in the direction of the trend of the market or asset.
These are often used for entry and exit points.
When price rises to resistance, many will sell the security or asset since the tendency is to see a reversal and the price to decline. If resistance is broken, it can often be an indicator for one to enter a position as a larger move up might be in order.
If a resistance line is broken, that becomes support as a new support level is formed.
Support and resistance lines can often parallel each other, forming a channel which an asset will trade within. Again, this can be flat, or upward/downward sloping.
This is utilized as part of technical analysis.
