The highest price level of an asset during a specific period.
Resistance refers to the highest price level of an asset during a specific period. This is observed when the price of the asset rises to the level of resistance and triggers traders to start selling. Usually, the selling pressure amongst traders at the resistance level causes the asset’s rising price level to halt and drop further.
A resistance line or level does not refer to the exact highest price of an asset. Instead, it reflects specific price zones that could trigger selling action. This is important, especially in performing technical analysis, because it signals the best time to buy or sell a particular asset based on its price breakout or trend reversal. For traders, it could also help them find the ideal entry and exit points whenever they plan to take trading positions.
A resistance level can also change constantly based on an asset’s price changes. But aside from price, a specific set of moving averages is also an indicator that traders utilize in plotting the resistance level.
To determine the resistance of an asset, you can simply draw the line on its daily price chart, connecting its recent peaks. This will show how the asset reversed its trend each time the level of resistance is reached. If the price has approached the specific price zone multiple times before, it indicates the strength of resistance.