Resistance (Resistance Level)
Definition of 'Resistance (Resistance Level)'
A chart point or range that caps an increase in the level of a stock or index over a period of time. An area of resistance or resistance level indicates that the stock or index is finding it difficult to break through it, and may head lower in the near term. The more times that the stock or index has tried unsuccessfully to break through the resistance level, the more formidable that area of resistance becomes.
Investopedia explains 'Resistance (Resistance Level)'
Resistance and support levels are widely used by experienced traders to formulate trading strategies. For example, if a stock is approaching a very strong resistance level, a trader may prefer to close the position rather than take the risk of a significant decline if the stock uptrend reverses.
On an interesting note, resistance levels can often turn into support areas once they have been breached. In a strong uptrend, investors and traders will embark on a buying spree once a stock conclusively breaks through resistance, sending it sharply higher. But traders and investors who missed the move may wait on the sidelines for a better price. This pent-up demand can become a source of support for the stock as it approaches the earlier resistance level.