There are two parts to this section because there are two ways to play supports and resistances. Picking the correct method will require you to study the behavior and personality of the stock. This first strategy will treat the stock as range bound.
A support is a price where demand is equal or greater than supply. In other words, it is the "bottom", and the stock price will usually rebound until it meets resistance. On the other hand, resistance is a key price level in which stocks lose their upward momentum and drops due to short sellers and profit takers.
Looking at the chart, it's easy to spot the strategy, buy low and sell high. Well in real life emotions get in the way and the average trader will buy high and sell low. Here's an illustration. The average Joe will buy the stock after it rebounds from support level. It might go up a 3-4% after they buy into it, and that's when they start getting cocky. They continue to hold on the stock even as it approaches the overbought or resistance territory. The Pros that bought early will start locking in their profits and the short sellers will realize that the stock is overvalued, and the stock starts tanking. The cockiness kicks into overdrive and persuades them to hold on, as "it's just a small correction, nothing to worry about". When the selling continues and the stock drops another 10%, they are in the red. To preserve their capital, they sell near the support, and then the Pros come in again taking the stock to new highs. The moral is, buy when people are scared and sell when people get greedy. BUFFET style.
-The Hawk
Support and Resistance: http://stockcharts.com/help/doku.php?id=chart_school:chart_analysis:support_and_resistan
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