Support (Support Level)

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What is 'Support (Support Level)'

Support or support level refers to the price level below which, historically, a stock has had difficulty falling. It is the level at which buyers tend to enter the stock.

If the price of a stock falls toward a support level, it is a test for the stock: the support is either confirmed or eradicated. Confirmation occurs as buyers move into the stock, causing it to rise. If the price moves past the support level, it means the support level failed, and the market is looking for a new level.


BREAKING DOWN 'Support (Support Level)'

Fundamental analysis looks at the performance of the company to determine the future direction of the stock. Technical analysis looks at patterns and trends in price alone. One of the most commonly used trends is referred to as a trend line. Drawing a line between a high and low point of a stock price creates a trend line. Analysts then use this line to find channels of support and resistance for a stock. Support and resistance are two sides of the same coin. The former is the floor, and the latter is the ceiling.

Support Levels

Support is a threshold or price point along this channel below which a stock price does not want to fall. Think of it as a floor. The floor is a sticky place for prices. From an auction perspective, this is a place where many buyers and sellers converge. Buyers and sellers know that when a stock hits a certain price, it brings in more volume. If it brings in more buyers, the price bounces off the floor, confirming the support level; however, if it brings in more sellers, or if buyers fail to show up, the price falls below the floor or support level. When this happens the support level can turn into a new resistance level or ceiling.

Resistance Levels

A resistance level is the opposite of a support level. From an auction perspective, this is a place where many buyers and sellers converge as well, but they converge at the ceiling rather than the floor. If the volume coming into the auction brings in more sellers, the price bounces off the ceiling, confirming the resistance level; however, if the new volume is made up of more buyers, the resistance level fails, and the price rises higher than the ceiling. When this happens the resistance level can once again reverse and become the new support level.