Support and Resistance

Support and resistance are the first step into the larger world of technical analysis.

The support level is the point where the price stops falling. Resistance is the opposite of support, it's drawn where the price stops rising. If the support level is taken as a floor, the resistance level would be defined as a ceiling from which the stock hits and comes back.

In simple words, support and resistance are horizontal lines that serve as boundaries where the price has bounced more than once. In the following chart, the support and resistance levels are shown in green and red color. Click on Show More Candles to see how prices react to these levels.

Netflix, Daily chart (2020 - 2021)

Actually, the chart is a diagrammatic representation of buyers' and sellers' decisions, and chartists look for prices that test support or resistance levels.

As much as the market reaches these levels and comes back, the more valid, strong, and reliable they are. The strong support and resistance levels show remarkable information about the market, like:

The direction of the market, whether it goes uptrend or downtrend.
The proper time for investment (to buy) in the hope of increasing the price and gaining profits.
And also alerting divestment (to sell) and exiting the market to prevent further losses.

NOTE: As you can see in the chart, it is common that the price reverses from support and resistances even before but close to these levels. On the other hand, it can pass the zone but reverse back before moving far away from the zone. This behavior is known as a fake breakout. It is also called fakeout.