In technical analysis, support and resistance are two fundamental concepts. Reading pricing charts correctly requires an understanding of both the meaning of these terms and how they are used in practical situations. Because of supply and demand, prices fluctuate. When demand is greater than supply, prices rise. When supply is greater than demand, prices fall. Sometimes, prices will move sideways as both supply and demand are in equilibrium.
Technical analysts use support and resistance levels to pinpoint price areas on a chart where there is a good chance that the current trend will stop, reverse, or break the current trend. Support occurs where a downtrend is expected to pause due to an increase of a demand. Resistance occurs where an uptrend is expected to pause temporarily, due to a concentration of supply. Market psychology plays a major role as traders and investors remember the past and react to changing conditions to anticipate future market movement.
What is Support??
Prices fall during a downtrend when there is an excess of supply compared to demand. For those holding out to purchase shares, prices get more attractive the lower they go. Demand that had been gradually rising will eventually reach the point where supply and demand are equal. Prices will then stop decreasing. This is support.
What is Resistance??
When selling pressure exceeds buying pressure, or when supply exceeds demand, this is when resistance occurs. Resistance is the psychological level at which investors are prepared to sell, anticipating that the stock price will not rise further. Because these price levels hinder the stock from shifting its price upward, it is also considered as a barrier. The trader or investor can liquidate his buy position when the stock trades close to the resistance level or he can take advantage of the situation by selling while holding the resistance level as a stop loss.
Let us see some examples of it:
This is nifty 3rd may chart. In this chart, price made a high of 18108 initially which acted like a high or resistance, then it has fallen to the first candle low which is around 18050 which acted like a support area. Price has tested this area 2 times, so it is a good support area. You can plan your trade over here. A good entry point could be a breakout of a resistance level. This trade has given a profit of around 250 points.
In this Bank nifty chart, price hit 43350 prices twice, so after confirmation of next red candle we could short this trade and could earned more than 200 points.
In this EURUSD chart, there was a support level at the bottom that has created doble bottom like a structure. With the confirmation of a strong green candle, you we can plan the trade with a previous candle low as a SL. This trade could be a good swing trade.
This is the recent nifty chart of a 28rd June. There was a good resistance level at the top. Price tested that region multiple times. But there was not enough buying pressure that can cross that level. Because of resistance or multiple tops, participants preferred to sell rather than to buy. So, buyers could not accumulate there. Finally on 28th June market opened at that resistance level. Tested that level for few minutes. Now there were few probabilities. Either market will go up and make new high or go down to any support level. There was a possibility of sideways market too. But enough buyers accumulate there and market went upside strongly. I have made few bucks in that directional buying.
To conclude everything, Support-Resistance, and their variation is very basic and important parameter for any price action trader or technical analyser. It can work with any trade, chart, and timeframe. While trading we must find good support-resistance ranges and plan our trade accordingly.
Cheers!!!!! Happy Trading!!!!!
Written By,
Devendra
Technical analysts use support and resistance levels to pinpoint price areas on a chart where there is a good chance that the current trend will stop, reverse, or break the current trend. Support occurs where a downtrend is expected to pause due to an increase of a demand. Resistance occurs where an uptrend is expected to pause temporarily, due to a concentration of supply. Market psychology plays a major role as traders and investors remember the past and react to changing conditions to anticipate future market movement.
What is Support??
Prices fall during a downtrend when there is an excess of supply compared to demand. For those holding out to purchase shares, prices get more attractive the lower they go. Demand that had been gradually rising will eventually reach the point where supply and demand are equal. Prices will then stop decreasing. This is support.
What is Resistance??
When selling pressure exceeds buying pressure, or when supply exceeds demand, this is when resistance occurs. Resistance is the psychological level at which investors are prepared to sell, anticipating that the stock price will not rise further. Because these price levels hinder the stock from shifting its price upward, it is also considered as a barrier. The trader or investor can liquidate his buy position when the stock trades close to the resistance level or he can take advantage of the situation by selling while holding the resistance level as a stop loss.
Let us see some examples of it:
This is nifty 3rd may chart. In this chart, price made a high of 18108 initially which acted like a high or resistance, then it has fallen to the first candle low which is around 18050 which acted like a support area. Price has tested this area 2 times, so it is a good support area. You can plan your trade over here. A good entry point could be a breakout of a resistance level. This trade has given a profit of around 250 points.
In this Bank nifty chart, price hit 43350 prices twice, so after confirmation of next red candle we could short this trade and could earned more than 200 points.
In this EURUSD chart, there was a support level at the bottom that has created doble bottom like a structure. With the confirmation of a strong green candle, you we can plan the trade with a previous candle low as a SL. This trade could be a good swing trade.
This is the recent nifty chart of a 28rd June. There was a good resistance level at the top. Price tested that region multiple times. But there was not enough buying pressure that can cross that level. Because of resistance or multiple tops, participants preferred to sell rather than to buy. So, buyers could not accumulate there. Finally on 28th June market opened at that resistance level. Tested that level for few minutes. Now there were few probabilities. Either market will go up and make new high or go down to any support level. There was a possibility of sideways market too. But enough buyers accumulate there and market went upside strongly. I have made few bucks in that directional buying.
To conclude everything, Support-Resistance, and their variation is very basic and important parameter for any price action trader or technical analyser. It can work with any trade, chart, and timeframe. While trading we must find good support-resistance ranges and plan our trade accordingly.
Cheers!!!!! Happy Trading!!!!!
Written By,
Devendra