Technical analysts identify support/resistance zones where price action is expected to either face significant pressures for a reversal or where a breakout/breakdown can extend the previous trend. Zones give a much better indication than single price points such as intra-day highs and intra-day lows; while a single price point can offer insight about price action as a bigger move is unfolding, zones offer a clear picture with regard to the strength of a trend. Whenever price action reaches a support/resistance zone, technical analysts will apply additional tools in order to assess the next move.
A support zone refers to a price range which has previously prevented price action from extending a move lower. A confirmed support zone is an area where bullish momentum should be expected to increase at the expense of bearish momentum. Once price action reaches a support zone, technical analysts apply other aspects of technical analysis in order to assess the potential for a price action reversal. A confirmed breakdown below a support zone is often accompanied by an increase in sell orders as the downtrend will extend.
A resistance zone has the same effect in the opposite direction. A confirmed resistance zone which has previously prevented price action from extending a rally is where bearish momentum will rise as bullish momentum is fading. Further technical analysis is then required in order to assess a price action reversal potential as well as the likelihood of a breakout.
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