Resistance
Definition
Resistance is a price level where selling pressure has historically overcome buying pressure, causing price to stall, reverse, or consolidate — it's the ceiling where supply enters the market and where breakout traders watch for either a confirmed break or a failed attempt (fakeout) to determine their directional bias.
Example
“The stock had rejected $44.50 three times over six weeks. Fourth test was different — it gapped above on earnings with 10x volume and held above all day. Three touches makes it strong resistance; a volume-confirmed break makes it support.”
Detailed Explanation
Resistance forms because of the collective psychology of market participants who previously bought at a level and are now sitting at breakeven or at a loss. When price returns to that level, those trapped holders sell to "get out flat" or to avoid deeper losses — creating the supply that causes the rejection. The more times price has touched a level and bounced, the more significant the resistance, because more participants have established positions at that price point. This is why three-touch resistance is stronger than one-touch, and why a well-established prior high on high volume is a more meaningful resistance level than a minor intraday swing high.
When resistance breaks on volume, the dynamic flips. The sellers who were defending the level have been absorbed, and the price has moved beyond where supply was previously dominant. Former resistance becomes support — the buyers who stepped in to push through the resistance level are now long and will defend their entries below the breakout point. This is the "polarity flip" principle, and it's why key breakout levels on the chart tend to hold as support on the first pullback. The more significant the resistance that was broken, the more significant the support it becomes after the break.
Resistance levels are not precise prices — they're zones. A stock that "broke resistance at $44.50" might find actual selling starting at $44.30 and ending at $44.80. Trading resistance as a zone rather than a precise line reduces false signals significantly. When approaching resistance, watch the price action clues: is volume drying up as price approaches (sellers have already exited and there's no fresh supply — bullish)? Or is volume expanding with price stalling (sellers entering aggressively — bearish rejection likely)? The price action and volume at the resistance zone tells you far more than the level itself.