Resistance

Resistance is a price level where an asset's upward movement encounters significant selling pressure, preventing further price increases. In trading, this occurs when the number of sellers exceeds the number of buyers at a specific price point, causing the rally to stall or reverse.

This phenomenon is often rooted in market psychology, where traders who missed an initial move look to sell at the previous high, or those who bought earlier seek to take profits. In the context of market microstructure, resistance levels often align with heavy limit order clusters on the order book.

When price approaches these levels, the liquidity provided by sell orders acts as a barrier. If demand cannot absorb this supply, the price will retreat.

Resistance can be structural, based on historical peaks, or psychological, based on round numbers. Once a resistance level is decisively broken, it often flips to become support, a concept known as polarity.

Understanding resistance is critical for technical analysis and managing trade entries and exits. It serves as a benchmark for gauging the strength of a market trend.