# Understanding Stock Support Levels: Definition, Trading Strategies, and Tips

## What Is the Support Level of a Stock?

A support level is a price point at which an asset struggles to fall below over a set period, created by buyers entering the market at lower prices. This concept is visualized by drawing a line connecting the lowest lows on a chart. Traders use these levels in conjunction with other technical indicators to plan entry and exit points, potentially buying in or taking short positions when prices approach or breach these levels.

### Key Takeaways

*   A support level is a price point below which an asset struggles to fall, supported by buyer interest.  
    
*   Traders utilize support levels to determine optimal entry and exit points in their trades.  
    
*   Support levels can be identified using simple lines, trendlines, or advanced indicators like moving averages.  
    
*   A breach of a support level may indicate a potential trend reversal, particularly during an uptrend.  
    
*   While support levels are vital, they should be used alongside other indicators to enhance decision-making.

![An investor reads financial data on a monitor after using software to chart the support level of a stock they follow.](https://www.investopedia.com/thmb/xCqy8jRNGGUUc7sdRfO5enasaHs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatIstheSupportLevelofaStockandHowDoYouTradeItGettyImages-1446898963-dfc52f88c89b40e1882cb8eb3dfaed4b.jpg)

*— Torsten Asmus / Getty Images*

## Interpreting Support Levels in Trading

Support level is the level at which buyers tend to purchase or [enter](https://www.investopedia.com/terms/e/entry-point.asp) into a stock. It refers to the stock share price that a company rarely goes below. The support level holds and is confirmed when the price of a stock falls toward its support level or the stock continues to decline. The previously demonstrated support level must change to incorporate the new lows when this occurs.

Support and [resistance](https://www.investopedia.com/terms/r/resistance.asp) levels are key in technical analysis. Fundamental analysis looks at a company's performance and history to predict stock movement. Technical analysis focuses on price patterns and trends.

> **Important**
>
> Traders and investors create stock support levels through limit orders or market actions.

Traders use support and resistance levels to plan entry and exit points for trades. If the price breaches support levels, it might be a chance to buy or short, based on other indicators. A breach during an uptrend can signal a [reversal](https://www.investopedia.com/terms/r/reversal.asp).

## Practical Example: Utilizing Support Levels in Stock Trading

Let’s say you're studying the price history of shares in the fictional Montreal Trucking Company with the ticker symbol MTC. You're trying to identify an ideal time to enter a long position in the company.

MTC has traded between $7 and $15 per share over the last year. The stock climbs to $15 during the second month of the period you’re studying MTC but it's fallen to $7 by month 4. It climbs again to $15 by month 7 before falling to $10 in month 9. It climbs again to $15 by month 11 and it falls to $13 over the next 30 days before climbing again to $15. 

![Support](https://www.investopedia.com/thmb/8yKBQFTb8j4_BPys7MP6Qh5TyjM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SupportSupportLevel3-13676643fd414ef9993618b8ef6f71f7.png)

**

You've established a support level of $7 and a resistance at $15 at this point. You can set a buy order at the lower end of the range if there are no other worrying factors on the technicals or fundamentals. There's a risk that an uptrend will be established if you set the order right at the support level of $7. Your order may never be executed even though you correctly identified the upside. It's important to consult more nuanced indicators in addition to simple support.

## Understanding the Limitations of Support Levels in Analysis

Support is more of a market concept than a true technical indicator. Many popular indicators incorporate these concepts including [price-by-volume charts](https://www.investopedia.com/terms/p/pricebyvolume.asp) and [moving averages](https://www.investopedia.com/terms/m/movingaverage.asp). These are more actionable than the simpler visualizations.

Traders will generally want to see the support band rather than a single line connecting the lowest lows because there's always a chance that support will move up and the order for a long position will go unexecuted.

## What Is Trading Volume?

Trading volume represents the number of trades that have taken place in a set period. It can measure just one security or the entire market depending on your needs and goals. The period is typically one day but it can be longer.

## What Is a Moving Average?

A moving average is a technical indicator that reflects changes in data from one time to another. It's used to try to determine the direction of a trend and is based on a variety of data. It's typically calculated repeatedly over the course of a trading day, and it often changes each time, thus the term "moving."

## What Is the Resistance Level?

The resistance level is the price point at which a stock has trouble moving beyond. Think of the support level as the floor and the resistance level as the ceiling. It's the level that occurs when supply prevents a stock from moving higher because sellers are less likely to sell.

## The Bottom Line

Understanding support levels is crucial for traders looking to identify entry and exit points effectively. By using technical indicators such as trendlines and moving averages, traders can visualize support levels and gain a dynamic view of market trends. Support and resistance levels serve as foundational concepts in technical analysis, assisting traders in making informed decisions. For those new to this area, enrolling in a technical analysis course can provide deeper insights. Please refer to our warranty and liability disclaimer for additional information.

_The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info._  

> **Article Sources**
>
> 1.  FOREX.com. "[Support and Resistance](https://www.forex.com/en-uk/trading-academy/courses/technical-analysis/uk-support-and-resistance/)."
>     
> 2.  Capital.com. "[Trading Volume](https://capital.com/trading-volume-definition)."
>     
> 3.  Fidelity Investments. "[Support and Resistance](https://www.fidelity.com/learning-center/trading-investing/technical-analysis/support-and-resistance)."