What Are Support and Resistance?
Support is a price level where buying pressure is strong enough to prevent the price from falling further. Think of it as a floor — the price drops to this level and bounces. Resistance is a price level where selling pressure prevents the price from rising further. Think of it as a ceiling — the price rises to this level and gets pushed back down.
These levels exist because of market memory. Traders remember where they bought or sold previously, and those memories influence their future decisions at the same price levels.
Why Support and Resistance Matter
- Entry points — Buying near support gives you a clear stop-loss level (just below support) and a favorable risk/reward ratio.
- Exit points — Resistance levels are natural areas to take profits.
- Stop-loss placement — Place stops just below support (for buys) or just above resistance (for shorts).
- Breakout/breakdown signals — When price breaks through support or resistance, it often leads to a significant move in that direction.
Types of Support and Resistance
Horizontal (Static)
Fixed price levels where the stock has reversed multiple times. The more times a level has been tested, the stronger it becomes. Example: if a stock has bounced off $50 four times over the past year, $50 is strong support.
Dynamic (Moving Averages)
Moving averages like the MA150 and MA200 create dynamic support and resistance that moves with the trend. In uptrends, the MA acts as a “rising floor.” In downtrends, it acts as a “falling ceiling.” This is exactly what Scanance scans for — stocks near their moving average support or resistance.
Psychological (Round Numbers)
Round numbers like $50, $100, $200, $500 often act as support or resistance because traders place buy and sell orders at these levels. A stock approaching $100 for the first time will often stall there before breaking through.
How to Identify Key Levels
- Look left on the chart — Scroll back 6–12 months and mark price levels where the stock reversed direction.
- Count the touches — A level tested 3+ times is significant.
- Check for volume spikes — High volume at a price level confirms it’s important.
- Add your moving averages — Plot the MA150 and MA200. Where they intersect with horizontal support/resistance creates extra-strong zones.
- Note round numbers — Mark the nearest major round numbers.
Support Becomes Resistance (and Vice Versa)
One of the most important concepts: when price breaks below support, that former support level becomes the new resistance. And when price breaks above resistance, that former resistance becomes the new support.
This happens because traders who bought at the support level and are now underwater will sell (to break even) if price returns to that level — turning their buying level into selling pressure (resistance).
Using Support/Resistance with Scanance
Scanance’s MA150 and MA200 signals are essentially dynamic support/resistance signals. When you see a stock in the MA150 Buy tab, it means the price is sitting right on its 150-day moving average support. Combine this with your own horizontal support/resistance analysis for even stronger trade ideas.