What is Support and Resistance

Support and Resistance Basics
9/19/07

I'd like to take a moment to share with our readers something that is somewhat elemental to trading but some folks still do not use as part of their daily analysis. Support and resistance, no matter how boring or elementary it may seem or sound, is still an integral part of a solid technical trading plan.

Back to the Basics
If you've been around any kind of equities trading at all, I'm sure you've heard the words "support and resistance" thrown around. But what do these technical analysis terms mean to emini traders?

In it's most basic form, support is the level at which buyers of a particular equity or underlying instrument overtakes those who are selling that particular instrument.  There are different "levels", or severities of this condition that take place. Resistance is just the opposite - sellers of a particular equity or underlying instrument overtake, or outnumber, buyers.

If a level of support or resistance is tested many times within a particular span, it is likely that that level will become firm. This means that traders can expect with some degree of certainty that the emini will not break through the level. Depending on how you trade as it pertains to a trend occurring, you may elect to wait and watch to see if the price of the emini will break through and cause a breakout, in which case support and resistance will be recalculated.

I usually try to wait until a firm level of support or resistance takes place and look for a countertrend entry potential with eminis before looking for other parameters that would confirm a buy or sell signal. As with any kind of technical analysis parameter, the more you see confirming a move, the more likely it is that that move will happen.