InvestorQ : Is it true that supports and resistances are an outcome of human psychology?
Maniish Lofar made post

Is it true that supports and resistances are an outcome of human psychology?

Answer
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1 year ago


That is largely correct. While there is a value angle to it, specific supports and resistances are only created by the confluence of human psychology. It is only when multiple traders and multiple investors create a similar psychological combination around a certain price range that you actually have a support level coming up. Similar logic applies to resistances levels also. These are just a few examples of many possible scenarios. If you’ve traded before you’ve probably been through all of these scenarios and experienced the emotions and psychology behind them. The logic is that traders and investors are after all human and hence react to external stimuli in a similar fashion. There are countless market participants going through the same emotions and thought processes as you and this is what helps determine some of the market psychology behind support and resistance and technical analysis in general. So to cut a long story short, supports and resistances are about human trading psychology and investment psychology. The stronger the confluence of psychology at a particular level, the stronger the resistance or support and the longer it sustains. Such levels can also be very decisive when broken because a long standing and well entrenched confluence of psychology gets broken.