Resistance is a technical term used to explain a downtrend force or pressure that works against an upswing in an asset’s value.
As the value of an asset increases technical analysis will begin to chart the upswing as a trend, but as the value increases, a downwards pressure will begin to exert itself. This ‘resistance’ to the upswing in price is due to a host of different reasons.
The primary reason for this downwards pressure is that of psychology. In essence as the value of an asset increases, the incentive to sell that asset increases as individuals begin seeking to capitalize on the upwards momentum. But as more people are encouraged to sell, the value increase will hit the ‘ceiling’ and if unable to break through this price ceiling, this will be leveling point of the price.
Support is the parallel concept to Resistance. Support trends run concurrently with Resistance trends. In effect, Support refers to an opposite directional force exerting itself, and the lowest point that an asset is expected to meet.
Resistance V Support
Both Resistance and Support are key concepts when analyzing an asset’s trends. These concepts appear as fairly simple ideas, but encompass a vast amount of technical market data. This technical data is used by technical analysts to conduct in-depth market predictions that can prove to be invaluable to investors.
However, it is work noting that Resistance and Support data predictive models can suspect to all manner of changes. The market value of assets can prove to be unexpectedly dynamic. Even though the charting of market trends is a highly technical field, the market itself is made of human actors who are suspect to an emotional reaction, oversight, and illogical decision making.
Investors use Resistance and Support evaluation metrics as an approximation, that if used correctly and in conjunction with other models of market analysis, can prove to be profitable.