Technical analysts often say that the market has a memory. Support and resistance lines are a key component of that memory.

Investors “tend” to remember previous area levels and thus make them important. When a price of a stock is changing rapidly each day the buying and selling will be done at a divergent level and there will not exist any unanimity or pattern in price changing. But when prices trade within a narrow range for a period of time an area is formed and investors begin to remember that specific price.

If the prices stay in an area for a longer period than the volume of that spot increases and that level becomes more important because investors remember it exceptionally well. Therefore, that level becomes more significant for the technical analyst. According to experts, previous support and resistance levels can be used as “target” or “limit” prices when the market have traded away from them. Assume that a year ago a rally ended with a top price of 120. That price of 120 then becomes a resistance level for the rally occurring in today’s market.