The concept of resistance is a very important part of the private investor’s understanding of the market.
Resistance occurs where a share or an index (or any financial data stream) reaches a top where it has been before – and then the question arises, “Will it penetrate that level?”
Perhaps there are large sellers who have standing orders with their brokers to sell out when and if the share reaches that level. That means that as soon as that level is reached, the share will fall back on increased selling.
This process of the market bumping its head against a ceiling can lead to a double top or even a triple top. Sooner or later, however, the situation will be resolved. Either the level will be penetrated convincingly on the upside or the market will become afraid and fall back. So resistance levels inevitably cause a period of uncertainty as everyone waits to see what will happen. Read More