Support and Resistance

Support and resistance are two technical terms used by technical analysist in the financial markets or stock markets.

When technical analysis is used to determine potential direction of a price chart, analyst usually take into account where is the support and resistance for a determine stock.

Support

Support is always below the current price. Support level ocurr when buyer and seller are basically in stalemate, none want to lose or refuse to pay more at the current value of the company. Therefore, the share prices trade sideways and stay at these levels forming a support line. The longer these level are tested and hold, the better the support is mean to be.

If the price break lower and stay below the support level, then this support is discarded.

The price may rallied from the support level but may return just to confirm the support level. The more often it rallies from a level, the better the support.

Resistance

Resistance is basically the inverse to support. Resistance is always above the current price. Resistance level ocurr when buyer and seller are basically in stalemate, none want to lose or refuse to pay more at the current value of the company. Therefore,  the share prices trade sideways and stay at these levels forming a resistance line. The longer these level are tested and hold, the better the resistance is mean to be.

If the price break higher and stay above the resistance, then the resistance level is discarded.

The price may fall from the support level, but might return,  confirming like this the resistance level. The more often it fall from a level, the better the resistance.

Constructing a Resistance & Support lines

Using a bar chart, draw a horizontal line across the lows of a possible support area. The more points are picked up along this line the better the support.

Resistance points, on the other hand, are located at the peaks. Draw a horizontal line across the high price points of a possible resistance area. The more points are picked up along this line the better the resistance.

Both resistance and support could happen during any trend line.

Bellow a sample of support & resistance. Support the lower line, resistance, the higher line.

support_resistance_price_chart

support_resistance_price_chart

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