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How to Test Whether Price Resistance Levels Exist

Article Quant Q&A · Author: stollenm
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Summary

The document frames an empirical question about whether resistance levels in financial prices have a measurable effect. It proposes identifying candidate levels and testing whether price crossings occur less often than expected. The author recognizes that defining resistance is itself difficult, making level identification a central part of any study design.

The post situates the question within broader debate about technical trading rules, whose reported profitability can vary with asset class, time horizon, transaction costs, and the method used to measure risk-adjusted returns. It asks for prior research but provides no study references, data, test specification, or findings. A crossing-frequency test would need a defensible way to identify levels and a suitable comparison baseline; by itself, reduced crossing frequency would not establish that trading those levels is profitable.

Key ideas

  • Resistance can be framed as a hypothesis that price crossings occur less frequently at identified levels.
  • Identifying resistance levels is a key methodological challenge.
  • Results on technical trading rules may depend on markets, timeframes, trading costs, and return measurement.
  • The document poses a research question but presents no cited studies, test results, or trading strategy.

Tags

Technical indicatorsStatisticsBacktesting
Full text
# Do resistance levels for financial securities prices exist?


# Do resistance levels for financial securities prices exist?












I know there is a large controversy about whether or not technical trading rules are profitable and research results depend on asset classes, time frames, trading costs, risk-adjusted return calculation, etc.

Compared to this complexity it seems rather simple to statistically test, if resistance levels exist. One would just have to identify them (which is the hard part, I guess) and then run a statistical test for whether price moves crossing the resistance levels indeed occur less frequently.

Do you know of any study who does this?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.