Support and resistance are price levels at which buying pressure (support) or selling pressure (resistance) is strong enough to temporarily halt or reverse a trend.
**Why they form**
Price levels where significant transactions occurred in the past create psychological anchors. Traders who bought at a support level remember it. If price returns there, some will buy again. Traders who sold at resistance remember being right; they may sell again at that level if given the chance.
**Types of support and resistance**
1. **Horizontal levels**: The most common. A price level where the market has previously reversed multiple times. The more times a level has been tested, the more significant it becomes.
2. **Trendlines**: Diagonal support (rising lows in an uptrend) and resistance (falling highs in a downtrend) lines.
3. **Moving averages**: Dynamic support and resistance that moves with price. The 50-day and 200-day moving averages are widely watched by institutional traders.
4. **Round numbers**: Psychological levels ending in 00, 000, or 50. AAPL at $200, Bitcoin at $100,000, Gold at $3,000.
5. **Previous highs and lows**: All-time highs are resistance with no historical precedent. Once broken, they often become support (known as role reversal).
**Role reversal**
This is one of the most powerful concepts in technical analysis: once a resistance level is broken convincingly, it often becomes future support, and vice versa. This is why technical analysts watch old resistance levels after a breakout.
**How we calculate support and resistance on investing.linigu.com**
Our engine calculates dynamic support and resistance zones using price percentile analysis over the last 60 trading days. Support 1 is the 10th percentile of recent lows; Support 2 is the 5th percentile. Resistance 1 is the 90th percentile of recent highs; Resistance 2 is the 95th percentile. These are approximate zones, not precise price triggers.