In the chart below, you can see on the left hand side of the chart that the price is ranging sideways. Just prior to this, the price had fallen 10% in a short term downward trend. It has now stabilised in an accumulation phase.

You can see that two peaks line up as a resistance line and a red line has been drawn through them. Each time the price trends up, it hits this barrier and falls away. No one is willing to pay a higher price than this. The lower red line is the support line. Each time it falls to this level, the price bounces upwards.

If you are still finding it difficult to understand support and resistance, imagine for a moment that you are standing on a trampoline in a 3 story house. The trampoline sits on the floor which supports your weight and the trampoline. This is the lower red line on the chart as is prevents the price from falling any lower. You start bouncing off the trampoline and everytime you push off, you hit your head on the ceiling. The upper red line on the chart is the ceiling, as it is stopping the price from going higher.

But don’t forget that you are on the second floor of a 3 story house. There is room to go up and there is room to go down. If you push off the trampoline hard enough, you will push through the plaster ceiling and end up on the third story. If the beams in the floor fail to support your weight, gravity will take hold and you will crash through to the first floor.

The share market works in the same way. Push through price resistance with enough force and you confirm the beginning of an uptrend. Fail to have enough support under the price and it will fall from the current price levels.

The example stock was in an accumulation phase, but a stock that is as volatile as this one will not stay this way for long. The price quickly rose above that of the previous recent peaks and began a new price move. When you see this occur, this is a resistance breakout and is a BUY signal.

A price closing higher than a series of recent price peaks is a BUY signal.