how do supply and demand affect resistance 
demand for an asset is what propels it higher over time absorbing market supply along the way liquidity refers to the amount of total supply and demand at any given time high liquidity is likely to limit the overall share price movement while low liquidity may see prices move excessively potentially making a gap the source of the demand may be a piece of macroeconomic news such as a comment from a federal reserve official or an earnings release after a series of gains however the demand may eventually lessen or stop altogether as in the buying spree has ended if the price forms a top then it now functions as a point or zone of resistance supply can come from multiple sources such as take profit selling around a resistance point or zone another example is where option holders may want to defend their option positions by selling a lot of shares at a specific price point ahead of resistance and of course macro news may pull traders in to short the market for a specific stock or other asset if negative news emerges leaving a resistance point behind in its wake resistance is made to be brokenusing technical analysis traders can identify a particular point or zone of resistance that resistance zone is likely to be tested amid an uptrend if the trend and buying interest are sufficient to challenge a resistance point traders may find that the resistance area breaks bringing in yet more breakout buyers stop loss buy orders above the resistance area may also come in to play bringing in yet another source of buying and clearly breaking above the resistance after a resistance point has been overcome it is not unusual to see sellers briefly test lower to the breakpoint to see if it holds if it does traders are likely to conclude that the break of resistance is valid and that the upside is in play this is an example of a broken resistance level turning into support known as the polarity principle once resistance is broken it becomes support and vice versa whether it is now major or minor support depends on the time frame of the resistance a break above a recent daily high is more bullish than a break of an hourly resistance point trading using resistanceonce identified as a point of resistance agile traders may seek to sell short on the approach to a particular resistance point say 105 per share or take profit on existing longs at or near to 105 both fresh sources of supply potentially reinforcing the resistance point traders who went short ahead of the resistance on speculation will be looking to buy back once the anticipated down move looks like it is about to end or does end if the price moves higher to test the resistance point those take profit sell orders may get filled reducing one source of supply if speculative short sellers also get their orders filled another source of supply is now gone most likely the short sellers probably have left stop loss buy orders higher above the resistance point or zone allowing a margin of error for slippage should the uptrend continue and eventually break above the resistance level those stop loss buy orders may get triggered generating a new source of demand that pushes the price higher alert breakout traders may enter the market on the buy side adding another source of buying demand identifying resistance levels with trendlinestrendlines are powerful tools to analyze a security s historical price action and identify resistance levels the chart below shows an hourly view of nvidia corp stock nvda note how an hourly top is formed at 220 00 50 and is subsequently broken leading to gains in the price to 230 00 50 which is tested again and holds forming a double top in the process also note that 220 00 50 later becomes a pivot line acting both as support and resistance on multiple occasions respecting the notion of polarity that broken resistance becomes support and vice versa in the daily nvda chart below we see how trendlines and basic pattern recognition can provide significant price signals and trading opportunities on the left side a double top pattern is formed over several days suggesting a top and opening up downside potential the following lows create a horizontal trendline that holds after the price failed again at the 190 per share level the price eventually tests the 140 per share trendline level which holds and the price goes into a strong upward channel breaking above the 190 major resistance and extends to the 230 per share level another double top is formed there suggesting that the uptrend is over for the time being alert readers may have noticed that the resistance levels encountered above are key and big round numbers like 140 190 and 230 these are frequently referred to as psychological big figures meaning traders pay close attention to these levels as potential zones of support and resistance there may be no good reason to pay attention to them on their own but psychological behavior makes them potential resistance levels identifying resistance levels with trading systemsmany different technical tools can be used to identify likely resistance levels based on mathematical formulas among them are simple and exponential moving averages 20 50 and 100 are favorites ichimoku cloud charts and bollinger bands to name a few below is an example of a daily nvda chart with bollinger bands overlaid bollinger bands are a momentum indicator set at two standard deviations from a simple 20 day moving average in the center as you can see the upper bollinger band neatly contains the price advances over the course of weeks giving traders an up to date upper resistance band that level could be used to take profit on long positions while the moving average in the middle identifies the overall trend 