Support is a price level that acts as a “floor,” preventing prices from dropping below that level.
Resistance is the opposite: a price level that acts as a “ceiling;” a barrier that prevents prices from rising higher.
Support and resistance levels are a natural outgrowth of the interaction of supply and demand in any market.
For example, increased demand for a stock will cause its price to rise, creating an uptrend.
But when the price has risen to a certain level, traders will take profits and
short sellers will come into the market, creating “resistance”
to further price increases.
Price may retreat from and advance to this resistance level many times, sometimes eventually breaking through it and continuing the previous
trend, other times reversing completely.
Support and resistance should be thought of more as general price levels rather than precise prices.
For example, if EUR/USD makes a low of 1.1010, rallies slightly then declines again to 1.1010, then rallies again. A subsequent move down to 1.1000 does NOT violate the “support level” of 1.1010.
In this case, the fact that the stock retraced once to the exact price level it had established before is more of a coincidence than anything else.