Understanding support and resistance levels is very simple. A stock will trade in a range, fluctuating up and down until it finally makes a definitive move up or down. When a stock rises and then suddenly hits an imaginary price ceiling, we call that price ceiling a resistance.

Resistance is a term people associate with “holding back,” because that is the basic principle of what is happening to the stock. It is being held back from making more gains. Now, if you can imagine a ball that bounces off the ground and propels itself higher. The ground acts as a support for the ball. The same idea applies to stocks when they are declining and then suddenly hit an imaginary ground, or support. A very important point to remember is that when a stock breaks through its support or resistance, In order to continue the trend, the breakthrough has to be on strong volume. Volume is the measure of how strong the push is behind the movement of a stock. Note that when a stock either returns to a support or resistance three or more times, we would refer to that as a “major support” or “major resistance.” These levels tend to be a little tougher to break through.

Once a stock breaks through support or resistance on high volume it will trade in a new range. If the stocks breaks through support and begins to fall. The old support level now becomes the resistance, or ceiling, and the stock now makes its way to a new support.
On the other hand, say a stock breaks through its resistance on high volume and now looks to begin an upward climb. The stock’s old resistance now becomes a price support as the stock looks higher for a new resistance.