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For the purposes of this chapter, we may define support as buying, actual or potential, sufficient in volume to halt a down trend in prices for an appreciable period. Resistance is the antithesis of support; it is selling, actual or potential, sufficient in volume to satisfy all bids and, hence, stop prices from going higher for a time. Support and resistance as thus defined, are nearly but not quite synonymous with demand and supply, respectively.

A support level is a price level at which sufficient demand for a stock appears to hold a downtrend temporarily at least, and possibly reverse it, i.e., start prices moving up again. A resistance zone, by the same token, is a price level at which sufficient supply of a stock is forthcoming to stop, and possibly turn back, its uptrend. There is, theoretically, and nearly always actually, a certain amount of supply and a certain amount of demand at any given price level. (The relative amount of each will vary according to circumstances and determine the trend.) But a support range represents a concentration of demand, and a resistance range represents a concentration of supply.

According to the foregoing definitions, you can see that the top boundary of a horizontal congestion pattern such as a Rectangle is a resistance level, and its bottom edge a support level; the top line of an Ascending Triangle is unmistakably a resistance level, etc. But we are more interested now in the reasons why support or resistance, as the case may be, can be anticipated to appear at certain price ranges. Within reasonable limits, and with a certain few exceptions which we will examine later, it is quite possible to do this. Expert chart readers are able frequently to make some amazingly accurate predictions as to where an advance will encounter resistance (supply) or where a declining trend will meet support.

The basis for such predictions—the elementary data from which support and resistance theories are derived—is that turnover in any given issue tends to be concentrated at the several price levels where a large number of shares changed hands in times past. Since any levels at which a great volume of transactions takes place usually becomes a reversal point (Major, Intermediate or Minor) in that stock's trend, it follows naturally that reversal levels tend to "repeat." But, here is the interesting and the important fact which, curiously enough, many casual chart observers appear never to grasp: These critical price levels constantly switch their roles from support to resistance and from resistance to support. A former top, once it has been surpassed, becomes a bottom zone in a subsequent downtrend; and an old bottom, once it has been penetrated, becomes a top zone in a later advancing phase.