A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely to continue dropping until it finds another support level.
Resistance
A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely that it will continue rising until it finds another resistance level.
Most Traders will be aware of the many different types of Support and Resistance methods used by traders. Proactive Support and Resistance methods are ‘predictive’ they often outline areas where price has not actually been. They are formed based upon current price action that through analysis has been shown to be predictive of future price action. Proactive Support and Resistance methods include Elliot Wave, Fibonacci, Calculated Pivots, & Trend lines. Support and resistance levels can be identified by trend lines. Some traders believe in using pivot point calculations. The more often a support/resistance level is "tested" (touched and bounced off by price), the more significance given to that specific level. If a price breaks past a support level, that support level often becomes a new resistance level (Support and Resistance switch-over). The opposite is true as well, if price breaks a resistance level, it will often find support at that level in the future. Various methods of determining support and resistance exist.
A price histogram is useful in showing at what price a market has spent more relative time. Psychological levels near round numbers often serve as support and resistance. More recently, volatility has been used to calculate potential support and resistance.
