Resistance (Resistance Level)
Candlefocus EditorVisualizing resistance is often done using trendlines, which are straight horizontal lines that connect highs, or the tops of pricing candles and bars. For example, if an asset’s price reaches the same point three times, that point shown on the chart is likely to act as a resistance and could potentially limit further upside potential. Breaking through a resistance level is generally seen as a good sign that the asset’s price may continue to increase.
The concept of resistance is closely linked to the idea of supply and demand. When an asset’s price reaches resistance, demand begins to decrease as more sellers enter the market and buyers exit. This is because investors, who may have previously bought the asset, expect to see a drop in price and will often place orders to sell at resistance levels. Conversely, if price breaks through resistance, demand increases as more buyers enter the market and are more willing to pay the higher prices.
However, resistance levels aren’t always stagnant and may change when the asset’s fundamental or technical outlook changes. What was once a strong resistance point may become a support point, and vice versa. To accurately track price movements and identify resistance levels, traders need to pay close attention to charts, trendlines, and other relevant patterns. If a price fails to break through resistance on multiple tries, it could indicate that the market may be headed for a bearish trend.
Overall, resistance levels are an important concept in technical analysis that provides investors with information about an asset’s pricing behavior and the balancing of supply and demand. By tracking the resistance on charts, traders can identify potential entry and exit points for making profitable trades.