Support Level
In technical analysis, a support level is a historical price area where buying interest has previously been strong enough to halt or reverse a declining price trend, characterized by recurring instances of the price stabilizing or bouncing in that zone.
Support is a foundational concept in technical analysis, referring to price zones on a historical chart where a declining price has repeatedly found buying interest sufficient to arrest the decline. The logic proposed by technical analysts is that when a price falls to a level where it has previously found buyers, market participants who purchased at that level in the past may buy again to protect their prior positions, or new buyers may perceive value at a historically significant price.
Support levels are identified through historical chart analysis by observing price action on past charts. Common methods of identifying historical support include: (1) prior lows — price areas where the market historically turned upward, (2) round-number price levels, which historically attract attention from market participants, (3) prior areas of significant trading volume, which in historical data often correspond to zones of price consolidation, and (4) levels derived from other technical tools such as Fibonacci retracements, moving averages, or pivot points.
Support and resistance are described in technical analysis literature as potentially interchangeable: once a historical support level is decisively breached in the historical record, it has often subsequently acted as a resistance level on any subsequent rally back to that price zone. This 'polarity' concept reflects how historical price charts frequently show price reacting to previously significant levels on both the way down and the way up.
It is critical to understand that support levels are observations derived from historical chart patterns. They describe where prices have historically encountered buying interest in past periods; they do not constitute a guarantee or prediction that the same behavior will recur. Markets are dynamic, and historical price levels may or may not prove relevant to future price action depending on an enormous range of factors including changes in business fundamentals, macroeconomic conditions, investor sentiment, and market structure.