On a chart, there are levels where price stops or turns back again and again at the same height. A level that held price up from below is called support, and one that pressed it down from above is called resistance. In this lesson, real charts show how to draw lines at such levels, the moves that often followed once a line broke, and the "false breakout" that looked like a break but came back. The patterns in later lessons are all read by "which line breaks", so this lesson comes first.
Why does price stop at the same level?
Many traders remember the levels where price turned before. People who bought at that level and got stuck want to sell when price comes back near their entry, and people who sold there want to buy again if price comes back down. So sell orders or buy orders pile up at the same level, and price often stopped there again. A level where price stopped two or three times carries more weight than one where it stopped once.
Horizontal lines: support and resistance
Join the level where rises kept turning back with a horizontal line and you have a resistance line; join the level where falls kept stopping and you have a support line. When price came back near resistance, it often turned back again, and when it came back near support, it often stopped again.
The turning points do not sit exactly on one line. They scatter a little above and below, so read the line as a band, "around here", rather than a single line.
Drag the chart sideways with a finger or the mouse to move it, and pinch with two fingers to zoom in. With a keyboard, click the chart, then use ←/→ to move and +/− to zoom.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. The grey horizontal line is the resistance line, and the down arrows (↓) are highs that turned back near that line. After touching the line again at candle 80, the price falls a long way. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
100 daily candles of one stock. For months the price turned back at the same level several times, and after reaching that level again at candle 80, it was pushed much further down than on the earlier turns.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. The grey horizontal line is the support line, and the up arrows (↑) are lows that stopped near that line. After coming back down to the line at candle 80, the price rises. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
The floor works the same way. This stock stopped at about the same level several times, and at candle 80 it came down to that level again before climbing. Dipping slightly below the line and then getting back above it is what "the line is a band" means.
Sloping lines: trendlines
Support and resistance do not have to be horizontal. In a rise, the lows keep getting higher, so joining two or more lows gives a line sloping up to the right. That is a rising trendline, and it acts as support each time price comes down near it.
In a fall, join the highs to draw a falling trendline sloping down to the right, and read it as resistance. The more points touch the line, the more weight it carries, and a break of the line was often read as a sign that the trend had turned.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. The grey sloping line is a rising trendline joining the lows (↑). If you extend the line to the right, the price drops below it around candle 80 and then falls. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
100 daily candles of one stock. While the lows rose like steps, the price rose again near the line time after time. The line ends at the last low, but try extending it to the right. Around candle 80 the price dropped below that extension, and after that the rise did not continue and the price was pushed down.
Role reversal: broken resistance becomes support
When price breaks up through a resistance line and later comes back down, it often stopped near that line this time and rose again. The line that used to press down from above turns into a line that holds price up from below, so this is called role reversal. This move back to the broken line to test it is also called a pullback.
The other way round, when price breaks down through a support line and then rebounds, that line often became resistance and capped the rebound.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. Highs (↓) turned back several times near the grey horizontal line. The price breaks up through the line, comes back down, steps on the line from above at candle 80 (↑), and rises again. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
This stock was held back at the same level several times before it finally climbed above it. After that it was pushed down for a while, but at candle 80 it came down near the old resistance line and rose again. This is the moment the line that capped the price became the line that held it up.
Breakouts and false breakouts
We first saw a breakout through a line with a box (a trading range) in the "Breakout" section of Basics lesson 2. It is the same story for a horizontal line or a trendline: once price gets past a line that held it back for a long time, the move often continued in that direction.
False breakouts
But getting past a line does not mean price keeps going that way. It is common for price to climb briefly above resistance, soon drop back below the line, and then get pushed the other way instead. This is called a false breakout. When the people who bought the breakout all sell at once, the push down can get even stronger.
A wrong example: it looked like a breakout, then came back
Charts by TradingView Lightweight Charts™
A chart of 100 candles. Highs (↓) turned back several times near the grey horizontal line. The price closes just above the line on two candles in a row (the second is candle 80, ↑), and on the next candle, candle 81 (↓), it comes back just below the line. After that the price falls, and a while later it is below the dip it made just before the breakout. The lower panel shows volume. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
This stock moved back and forth, turning near the same level several times, then closed above the line on two candles in a row. The second, candle 80, also had more volume than usual, so by the textbook it looked like a breakout. But on the next candle, candle 81, it came back just below the line, then started sliding, and a while later it fell even below the dip it made just before the breakout.
- It did not get far past the line. The line is a band, and this breakout stayed inside the band. Both candles only just cleared the line, and the candle that came back closed just below it. Earlier, while the price moved back and forth, several candles had also closed slightly above the line and then come back. A move that does not clearly leave the band cannot yet be called a breakout.
- Holding for two candles was not enough. Checking that price holds above the line for a candle or two is a common confirmation, and this chart met it, yet the price never moved away above the band and came back down. A move can meet the confirmation and still fail.
- Rising volume does not prevent a wrong call. Even when confirmation signs stack up, they do not predict future prices. That is why setting your exit in advance, such as "sell if it closes back below the line", lets you get out before the loss grows.
Using support and resistance in the game
When a match starts, the first 60 candles are already on the chart. In those candles, find one level above and one below where price stopped several times. Then you will know in advance what to do when the next candles approach those levels. There is no short selling in the game, so choose both your buy and sell points around one idea: hold while the price rises.
| What you see | A common response |
|---|---|
| Price comes down near support and stops | Treat it as a place to buy. Decide in advance to sell if it closes clearly below the line. |
| Price rises near resistance and turns back | If you are holding, treat it as a place to sell. The way up is capped, so wait before buying new. |
| Price breaks resistance and closes above it | Buy once it clearly leaves the line and holds above it for a candle or two. If it comes back below the line, treat it as a false breakout and sell. |
| Price comes back down to the broken resistance and stops (role reversal) | If you missed the breakout, this pullback becomes another chance to buy. Decide to sell if it drops below the line. |
| A rising trendline breaks | If you are holding, treat it as a place to sell. It was often read as a sign that the rise had turned. |
Watch out for
- A line is a band. The turning points do not sit exactly on one line. Calling a breakout because price went slightly over, or a collapse because it dipped slightly under, often leads to wrong calls.
- Do not force a line. A level where price stopped once is not yet a line; start from levels where it stopped two or three times. With trendlines, too, joining any points you like will give you any line you want.
- Too many lines mean nothing. If this level and that level are all lines, price is "near a line" everywhere. Keep only the clearest line above and the clearest line below.
- Trade count: a match allows up to 10 trades (a buy counts as one and a sell counts as one). Buying and selling every time price touches a line uses them up fast, so act only at clear lines.
Once you can see whether price gets past a single line, you can also read the shapes that several highs and lows make together. The next lesson covers the top shapes that often appeared when a rise was losing strength.