Finding and updating support and resistance levels is one of the primary jobs that technical analysts do. A support level (SL) is the cost at which securities that are dropping in value are expected to bounce back. A resistance level (RL) is the reverse, and is the expected price where securities climbing up hit a ceiling and are unable to climb further.
Why each stock has these support and resistance levels and the way to figure out them is really a complex subject that's made harder by the fact that these markers tend to shift over time. Let's try a straightforward explanation initial involving investor psychology, just before obtaining to the technical jargon. Assume that an investor buys a share for $100.
Let's say the share climbs up to $120 but just before the investor can offload the share, it drops back down to $110. Now it starts going up once more, and when it reaches $120 the investor has to contemplate whether it is going to drop back down and if so, wouldn't it be better to offload it before it drops? Since a whole lot of people face the exact same issue and actually do offload it at $120, the price drops once more.
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