TRADING GLOSSARY

Resistance: where sellers overpower buyers

Resistance is a price level where selling pressure historically exceeds buying pressure, causing the price to reverse downward. It acts as a ceiling on price, preventing further upward movement until buyers develop enough conviction to break through.

How resistance forms

Resistance develops at previous highs where traders who bought took profits, round numbers (e.g., $100, $50) that attract sell orders, moving averages acting as dynamic resistance, and Fibonacci retracement levels from prior swings.

Trading resistance

Selling at resistance: In a rangebound market, sell (short) when price approaches known resistance with a stop loss above the level. Breakout above resistance: When price closes above resistance on high volume, the breakout signals continuation higher. The old resistance often becomes new support. Failed breakout: When price pierces resistance but immediately reverses, it traps breakout buyers and often leads to a sharp decline.

Strength of resistance

The more times price has tested a resistance level and reversed, the stronger it is. Higher timeframe resistance (weekly, monthly) is more significant than lower timeframe. Resistance with high volume at the level is more meaningful. Resistance that aligns with other technical factors (moving averages, Fibonacci, trendlines) creates “confluence” and is the most reliable.

AskTrade’s Technical Analysis Agent identifies all key resistance levels and rates their significance for every asset analyzed.

Disclaimer: This is for educational purposes only and does not constitute financial advice. Trading involves significant risk of loss.

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