Cursory Look at Support and Resistance

This article will clear the concept of the very crucial topic of trading called support and resistance. After learning the basics of trend lines in technical analysis, novice traders switch to technical topic of support and resistance. The support and resistance are two basic terms in the stock market. These are the most talked about attributes of technical analysis in the stock market. The support on a chart is a horizontal line that stops the price of the stocks to fall. The support in the chart is also referred to as the “floor”. Similarly, the resistance can be explained as the horizontal line that stops the price of the stock to rise. The resistance in the chart is also referred to as the “ceiling”. However, these horizontal lines are nothing more than a decision line of the price of the stock.

The pattern seems like a bouncing ball, which is bouncing from the floor to the ceiling. As one can observe that, the ball hits the floor and bounces. After bouncing, it hits the ceiling and drops down. Support and resistance is like floor and ceiling with changeable stock prices in between.

Let us assume that Mr. X who has bought the share of Ashok Leyland, in March 2006. The price of stock fluctuates until November 2006. Peeping into the scenario, you will observe the price of stock has reached up to level 39 on April and July. The price of stock has not crossed the level 39, so this level is resistance level of these occasions.

The prices of stock on a chart, which act as a floor by stopping the price from being pushed downward. The skill to recognize a stage of support can also agree with a superior buying opportunity as this is the spot where traders notice good value and thus start to push prices higher again

Support and resistance breakout

When the breakout happens in the chart then resistance becomes support and support becomes resistance. Traders feel that the more support and resistance level is tested the better it is, as it creates more perplexity.

As soon as the orders will be filled, the breakout will take place.

How to identify support and resistance?

Trend lines can identify the support and resistance. Some of the traders use pivot point calculations to detect the support and resistance. The level gain importance as more and more the traders test it. When the price breaks out of support level, then the support level turns into a new resistance level. On the other side, when the price breaks out the resistance level, then the resistance level turns into a new support level.

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