Zone Of Resistance

DEFINITION of 'Zone Of Resistance'

A price zone in which a stock finds resistance and begins to trade downward. In technical analysis, that support occurs not at a finite point, but in a zone. The "density" of the zone of resistance (how far up the price can move through it), depends on the volume of trading as the price approaches and enters the zone. The higher the volume of trading in the zone of resistance, the lower the point at which the actual resistance will most likely occur.

BREAKING DOWN 'Zone Of Resistance'

As the price of a security climbs toward a zone of resistance, it is a test: how far the price moves down through the zone will be an important indicator for future attempts to pass through it.

It is important to note that even though higher volume can lower the actual resistance point within the zone, the chance of the resistance zone being wiped out is also higher. When trying to pick the top of a retracement, it is imperative that stop-loss orders be used.

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