Resistance Levels
Resistance Levels: The Price Ceiling
A resistance level is a price point where a stock tends to stop rising and pull back down. It acts like a ceiling above the price. When the stock reaches this level, sellers step in — either taking profits or shorting the stock — creating enough supply to halt the advance.
How to Identify Resistance
Finding resistance on a chart follows the same process as finding support, but in reverse:
- Look for price levels where the stock has risen to a certain point and then reversed downward
- If the stock has been rejected at the same price level two or more times, that is a resistance level
- The more times the level has held, the stronger the resistance
For instance, if EABL has tried to break above KES 170 three times in the past year but has been pushed back each time, KES 170 is a strong resistance level.
Breakouts: When Resistance Gives Way
One of the most exciting events on a chart is a breakout — when the price finally pushes through a resistance level. A valid breakout typically has these characteristics:
- High volume — Many buyers are participating, showing strong conviction
- Decisive close above resistance — The price closes well above the level, not just briefly touching it
- Follow-through — The price continues higher in the days following the breakout
False Breakouts
Sometimes a stock appears to break through resistance but then quickly falls back below. This is called a false breakout or a bull trap. It catches eager buyers off guard and can lead to sharp declines. Always look for confirmation — volume and follow-through — before acting on a breakout.
Role Reversal
Once resistance is decisively broken, it often becomes new support. The old ceiling becomes the new floor. This is a key concept used by experienced chart readers on the NSE and globally.