A test is when a stock’s price approaches an established support or resistance level set by the market. If the stock stays within the support and resistance levels, the test passes. However, if the stock price reaches new lows and/or new highs, the test fails.


Popular technical indicators that traders and investors use to test support and resistance levels include trend lines, moving averages and round numbers. For example, many investors pay close attention to the price action of major stock indexes, such as the Standard & Poor's 500 Index (S&P 500), Dow Jones Industrial Average (DJIA) and Nasdaq Composite when they test their 200-day moving average or a long-term trendline. More advanced techniques used to test support and resistance levels include using pivot points, Fibonacci retracement levels and Gann angles.

The below chart shows the S&P 500 testing its 200-day moving average:

Image depicting a price test.

Traders should monitor volume closely when a stock’s price approaches key support and resistance areas. If the volume is increasing, there is a higher probability that price will fail when it tests these levels due to increased interest in the issue. Declining volume, on the other hand, suggests the test may pass as the stock may not have enough participation to breakout to a new level. A stock can test support and resistance levels in both a range-bound market and trending market.

Range-Bound Market Test

When a stock is range-bound, price frequently tests the trading range’s upper and lower boundaries. If traders are using a strategy that buys support and sells resistance, they should wait for several tests of these boundaries to confirm price respects them before entering a trade. Once in a position, traders should place a stop-loss order in case the next test of support or resistance fails. (For further reading, see: How do I Effectively Create a Range-Bound Trading Strategy?)

Trending Market Test

In an uptrending market, previous resistance becomes support, while in a downtrending market, past support becomes resistance. Once price breaks out to a new high or low, it often retraces to test these levels before resuming in the direction of the trend. Momentum traders can use the test of a previous swing high or swing low to enter a position at a more favorable price than if they would have chased the initial breakout. A stop-loss order should be placed directly below the test area to close the trade if the trend unexpectedly reverses.

  1. Support (Support Level)

    The price level which, historically, a stock has had difficulty ...
  2. Breakout

    A price movement through an identified level of support or resistance, ...
  3. Trading Channel

    When charting the price of an asset, this is the space on the ...
  4. Buy Stops Above

    A recommendation to buy a specific security when a the security's ...
  5. Support Test

    One of five tests that must be passed in order to claim someone ...
  6. Bank Stress Test

    An analysis conducted under unfavorable economic scenarios which ...
Related Articles
  1. Trading

    Stocks Surging Into Major Resistance

    These stocks recently surged but are now trading right at resistance. While another breakout is possible, it is also a good time to consider taking profit.
  2. Investing

    Sell These Stocks Near Resistance

    These stocks are at or approaching major profit-taking levels, which could cause them to slip lower again.
  3. Trading

    Major Airline Stocks Tumbling

    Major airline stocks dropped following Trump's travel ban announcement. Here's some buy and sell locations.
  4. Trading

    Missile Tests Send Gold Prices to Highest Levels This Year

    Gold prices broke out after North Korea's latest missile tests, but traders will be watching these key resistance levels.
  5. Trading

    First Solar Stock Testing Heavy Resistance

    With shares testing resistance near $40 for the past six weeks, the odds are now evenly divided between bulls and bears.
  6. Trading

    Time Running Out for Bulls on Goldman Stock

    Goldman Sachs shares have failed to break out after 12 months of testing the 2007 high, raising the odds for a trend change.
  1. What is the difference between fundamental and technical analysis?

    Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at ... Read Answer >>
  2. How do I calculate forex pivot points?

    Pivot points are used by traders to predict support and resistance levels in the current or upcoming session. These support ... Read Answer >>
  3. What is a common strategy traders implement when using the Percentage Price Oscillator ...

    Learn a common trading strategy that can be implemented using the percentage price oscillator as a technical indicator for ... Read Answer >>
Hot Definitions
  1. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  2. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  4. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  5. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  6. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
Trading Center