When it comes to trading, one of the most important things you can learn is how to spot strong support and resistance levels.
These are the price points where a stock, commodity, or index tends to stall or reverse — and they can make all the difference in deciding when to buy, sell, or sit tight.
Let me walk you through it.
What Are Support and Resistance Levels?
Think of support as a safety net. It’s a price level where a market has consistently stopped falling in the past.
Resistance, on the other hand, is more like a ceiling — a level where prices struggle to go any higher.
Why do these levels matter? Because they show us where buyers or sellers have historically stepped in with enough force to change the direction of the market.
How To Spot Them
It’s not rocket science, but it does take a little practice. Here’s what I look for:
- Historical Price Action: If a stock or commodity has bounced off the same level multiple times, that’s a clear sign of support or resistance. For example, if a stock you’re looking at keeps stalling as it hits the $106 mark, that’s not random — it’s a key resistance zone.
- Psychological Levels: Numbers like $2,500, $2,600, etc often act as magnets for the market. I call them “century marks,” and they tend to attract a lot of attention. Gold futures’ recent rejection near the $2,700 is a perfect example.
- Technical Tools: Sometimes, I’ll use tools like Fibonacci retracements or moving averages to confirm what the price action is already telling me. These can help you spot levels you might’ve missed otherwise.
- Opening Prices: You’ll often hear me talk about the daily open, the weekly open, the monthly open or even the yearly open. Those are key levels for each of those time frames. I look at the opening prices as the “start of the race”, so to speak. So when, for example, the a stock is down from it’s opening price today, I know that sellers are out in force and until the price gets above the open, the stock is in a selling mood.
How I Use These Levels
A couple of weeks ago, I talked about gold futures hitting just above 2700 and pulling back.
That resistance level was no surprise to me. I know that gold futures are really sensitive to those century marks. So when it approached that level, I was watching to see how the market reacted. Would it push through, or would it sell off?
Turns out, it sold off hard. But that pullback didn’t rattle me. Why? Because I know the forces driving gold higher are still in play, and I also know that pullbacks often set the stage for the next big move up.
That’s the power of understanding support and resistance.
Why This Matters
If you’re just starting out, you might feel overwhelmed by all the noise out there — the headlines, the talking heads, the endless sea of numbers.
But here’s the thing: markets move for simple reasons. Support and resistance levels are one of those reasons. The stories that the mainstream media puts to stocks and the movements of the market are just that — stories.
Learn to spot the key price levels, watch how the market reacts when it hits them, and you’ll be ahead of a vast majority of traders out there.
If you take one thing from this, let it be this: patience is your best tool.
Support and resistance levels don’t just tell you where the market might go — they also tell you when it’s time to wait and let the market come to you.
Start small, practice spotting these levels, and before long, they’ll feel like second nature.
— Geof Smith
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