How to Calculate Support and Resistance for Stocks

by Bryan Keythman

Support and resistance levels are a type of lower and upper boundary between which a stock’s price may fluctuate. A “support” level is a price range at which investor demand may theoretically prevent a stock’s price from falling further. A “resistance” level is a price range at which sufficient supply may limit the price from rising higher. When a stock’s price reaches a support or resistance level, it may reverse and move in the opposite direction. You can identify support and resistance levels on a stock’s price chart.

1. Visit a financial website that provides stock charts. Type a company’s name or ticker symbol into the input field and click the button next to the text box to bring up the stock’s price and chart.

2. Print out a hard copy of the stock chart.

3. Examine the stock’s previous price movements and find price points that the stock has reached above the current price that appear to line up along a horizontal line. Additionally, find previous price points below the current price that appear to be along a horizontal line.

4. Draw a horizontal line connecting the high price points. Draw another horizontal line connecting the low price points.

5. Identify the price, usually listed vertically on the right side of the stock chart, at which the low horizontal line meets to determine the stock’s support. For example, if the horizontal line connecting the low price points meets at a \$20 price on the right side of the chart, the stock has a support level of approximately \$20. This means that the stock may have trouble going below \$20.

6. Identify the price on the side of the chart at which the high horizontal line meets to determine the stock’s resistance. If the high horizontal line meets at \$30, the stock has a resistance level of around \$30 and may resist advancing higher than that.

Tip

• More points along a horizontal line of support or resistance strengthen the support or resistance level and make it more likely that a stock’s price will not break through the level.

Warning

• Support and resistance levels are not exact and should be used only as general indicators. The market may ignore a support or resistance level and send a stock’s price past the level without hesitation.

Photo Credits

• Comstock/Comstock/Getty Images