Resistance (Resistance Level)

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Definition of 'Resistance (Resistance Level)'

Resistance is a technical analysis term that refers to the price level at which a financial asset's price has repeatedly failed to rise above. This level of resistance can act as a ceiling, preventing the asset's price from rising further.

There are a few different ways to identify resistance levels. One common method is to use a moving average. A moving average is a line that is calculated by taking the average price of an asset over a certain period of time. When the price of an asset rises above a moving average, it is often seen as a sign of strength. However, if the price then fails to continue rising and instead falls back below the moving average, this can be interpreted as a sign of weakness. The point at which the price falls back below the moving average is often seen as a resistance level.

Another common method for identifying resistance levels is to use chart patterns. Chart patterns are recurring formations that can be seen on price charts. Some chart patterns, such as head and shoulders tops, are often seen as bearish signals. This means that they suggest that the price of an asset is likely to fall. The point at which the price breaks down below the neckline of a head and shoulders top is often seen as a resistance level.

It is important to note that resistance levels are not always reliable. The price of an asset can often break through a resistance level, only to fall back down again. However, resistance levels can be helpful in identifying potential areas of support and resistance.

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