The level of support and resistance.
What lies behind the levels of support and resistance? Why is the trader constantly looking for levels of support and resistance on the charts? What are they so important? The fact is that they show us the fundamental law of any market - supply and demand. Increased demand arising in the grounds after the price reduction, generate buyers, which leads to an increase in the stock and the formation of a level of support.
When the price rises to a certain level, buyers begin to offer their shares for sale to lock in profits, thus generating an increased supply, which leads to lower prices and the formation of a resistance level. This is understandable.
Where is the support level on the chart, and where is the resistance level?
Regardless of the direction of the trend, the level of support is always placed below the current price (at the bottom), and the resistance level is higher (at the top). Example:
The level of support at the bottom (area of low market prices), and the level of resistance at the top (area of high market prices).
How to understand the expression: the levels of resistance and support change roles?
If the price has overcome the resistance level, then in the future there is a high probability that it will become a support. This also applies to the reverse. Example: