Skip to content

Support and Resistance

Support and resistance are fundamental concepts in technical analysis representing price levels where buying or selling pressure tends to overcome opposing forces.

What is Support?

Support is a price level where buying demand is strong enough to prevent the price from falling further.

Think of support as a "floor" under the price: - Price approaches support and bounces upward - Buyers outnumber sellers at this level - Acts as a potential entry point for long positions

What is Resistance?

Resistance is a price level where selling pressure is strong enough to prevent the price from rising further.

Think of resistance as a "ceiling" above the price: - Price approaches resistance and reverses downward - Sellers outnumber buyers at this level - Acts as a potential exit point or short entry

Identifying Support and Resistance

Historical Price Levels

# Find support - lowest price in recent period
support = low_prices.last(20).min

# Find resistance - highest price in recent period
resistance = high_prices.last(20).max

Round Numbers

Psychological levels often act as support/resistance: - $50, $100, $1000 (round numbers) - Previous all-time highs - 52-week highs/lows

Moving Averages

Dynamic support/resistance: 

sma_200 = SQA::TAI.sma(close, period: 200)

# 200-day SMA often acts as major support/resistance
if close.last > sma_200.last
  puts "Price above 200 SMA - bullish"
else
  puts "Price below 200 SMA - bearish"
end

Previous Highs and Lows

  • Previous resistance often becomes support after breakout
  • Previous support often becomes resistance after breakdown

Trading with Support and Resistance

Buying at Support

support_level = 48.50

if close.last <= support_level * 1.01  # Within 1% of support
  rsi = SQA::TAI.rsi(close, period: 14)

  if rsi.last < 40
    puts "Buy signal: Price at support + oversold RSI"
    puts "Entry: $#{close.last}"
    puts "Stop: $#{(support_level * 0.98).round(2)}"  # Below support
    puts "Target: $#{resistance_level.round(2)}"
  end
end

Selling at Resistance

resistance_level = 52.00

if close.last >= resistance_level * 0.99  # Within 1% of resistance
  rsi = SQA::TAI.rsi(close, period: 14)

  if rsi.last > 60
    puts "Sell signal: Price at resistance + overbought RSI"
    puts "Entry: $#{close.last}"
    puts "Stop: $#{(resistance_level * 1.02).round(2)}"  # Above resistance
    puts "Target: $#{support_level.round(2)}"
  end
end

Breakout Trading

When price breaks through support or resistance:

# Breakout above resistance
if close.last > resistance && close[-2] <= resistance
  volume_surge = volume.last > (volume[-20..-2].sum / 19 * 1.5)

  if volume_surge
    puts "Valid breakout above resistance on high volume"
    puts "New support formed at: $#{resistance.round(2)}"
  else
    puts "Weak breakout - low volume, may be false"
  end
end

Support and Resistance Strength

Multiple Tests

The more times a level is tested without breaking, the stronger it becomes: - 2 tests: Weak support/resistance - 3-4 tests: Moderate strength - 5+ tests: Strong support/resistance

Volume

Higher volume at a level increases its significance: 

# Check volume at price level
if price_at_level && volume.last > avg_volume * 1.5
  puts "Strong support/resistance - high volume"
end

Timeframe

Support/resistance on higher timeframes is more significant: - Monthly levels > Weekly levels > Daily levels

Role Reversal

Support becomes resistance (and vice versa) after a break:

old_resistance = 50.00

# After breakout above
if close.last > old_resistance
  puts "Old resistance at $50 now acts as support"
  puts "Look for pullbacks to $50 for entries"
end

Using SQA::TAI with Support/Resistance

Pivot Points

# Calculate pivot points
typical_price = SQA::TAI.typprice(high, low, close)
pivot = typical_price.last

resistance_1 = (2 * pivot) - low.last
support_1 = (2 * pivot) - high.last

puts "Pivot: $#{pivot.round(2)}"
puts "R1: $#{resistance_1.round(2)}"
puts "S1: $#{support_1.round(2)}"

Bollinger Bands

# Bands act as dynamic support/resistance
upper, middle, lower = SQA::TAI.bbands(close, period: 20)

if close.last < lower.last
  puts "Price at lower band (support)"
elsif close.last > upper.last
  puts "Price at upper band (resistance)"
end

ATR for Stop Placement

atr = SQA::TAI.atr(high, low, close, period: 14)

# Place stop below support using ATR
stop_distance = 2 * atr.last
stop_loss = support_level - stop_distance

puts "Support: $#{support_level.round(2)}"
puts "Stop Loss: $#{stop_loss.round(2)}"

See Also