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When we looked at support levels, we were identifying price areas where it looked as if we should buy shares, as it was probable that the price would go back up. The resistance level is very similar, but opposite in effect. It is a price level that it seems the price will not go above.

To find a resistance level, look for places where the price peaked and pulled back. It is best if the pullback is significant, and not just a minor fluctuation in the price. Looking over the full width of the chart, see if this price level has acted in a similar way at a different time, in other words did the price come up to peak, and then fall away.

If you can identify two peaks at the same level, you can draw a horizontal line across them and this will be a resistance level. Traders will see that it is a resistance level, and it is likely that when the price comes back up to this level again they will act on this information, and sell any share holding that they have, expecting the price to fall back.

Relying on the fundamental economic theory of supply and demand, this increase in supply will likely cause the price to fall, fulfilling the expected action of the resistance level. When you are trading, you should look to act in the same way, selling any share holding that you have for a profit when the price touches the resistance.

You may want to note that trading is not an exact science, and therefore you can decide not to wait until the price exactly matches the level that you have drawn. It is possible that the price will come up to the proximity of the resistance level, but never actually touch it before retracing downwards.

Another way that you can determine the resistance level is by using previous information on support levels. Say you have identified a support level, which had been verified by the price coming down to it several times and bouncing back up. At sometime, you might find that the price comes down to the support level and breaks through it, continuing downward.

It is in the nature of things that support and resistance levels are common, and the same level that has been a support will become a resistance once the price is below it. You can see this on many charts, and there are psychological reasons that make it so. This means that a previous support level can be used confidently as a resistance level in your future trading.

As with support levels, it is possible to have several different levels that have been resistance in the past. These may prove to give resistance to the price in the future, and again the strength of the resistance can be gauged by how many times it has been effective in the past.