Resistance Level
A price level where selling pressure is strong enough to prevent the price from rising further.
What Is Resistance Level in Trading?
In trading, a resistance level is a price point at which an asset struggles to rise above due to increased selling pressure. It acts as a "ceiling" where the price of the asset tends to stop climbing and may reverse downward.
How It Works
- Selling Pressure: When an asset approaches a resistance level, traders may start selling to lock in profits or prevent potential losses, making it harder for the price to break past that point.
- Testing and Breaking: An asset can "test" a resistance level multiple times. If it breaks through and sustains above that level, it could signal a further uptrend. If it fails to break through, it might drop back down.
Example
Imagine a stock that has repeatedly reached $50 per share but struggles to climb higher. This $50 mark is the resistance level. Traders expect selling to increase each time the stock hits this price, making it hard for it to go beyond.
The Sum Up
In short, a resistance level is where the price of an asset often gets stuck because of increased selling, acting like a barrier to further price increases.