Tutorials on support and resistance with examples and Strategies.

Support Basics Resistance Basics

Support and resistance are one of the important pillars of technical analysis and stock analysts invariably use them as one of their key technical tools.

Support is a point below which stock price is unlikely to fall below unless a significant development around the stock takes place and resistance is a price beyond which stock price is unlikely to rise in the selected time frame.

Why are these support and resistance formed?
Support and resistance are formed at points around high supply or demand zone. If at support at 100 then in and around that price there are lots of buyers ready to buy causing the stock not to fall from that price perceiving it to be cheap and same goes for resistance where lot of traders would like to offload their positions considering that price to be too high for the stock and good time to book profit.

These points can be static price like a psychological number like 100 or 50, or even may be previous highs/lows. Or they may even by a dynamic price with Market movement. If the overall market is moving up, support price may continue to move up and vice verse.

These points validity depends on trend they are in or the time frame. Support and resistance exist for small interval period like intraday to a multiyear time frame. So it is important to identify them based on period where traders are performing analysis

Minor Support & Resistance cause trends to slow or pause while major Support & Resistance cause trend reversal

Parameters Determining strength of Support and Resistance?
A number of factors a trader may want to look around to see the strength and to confirm it. They are:

1. Length: The longer the duration of Support or Resistance the more reliable and stronger it is. Longer duration shows more points, a price is hitting showing the positive sentiments.
2. Height: The broader the distance between the Support and Resistance the more powerful it is.
3. Volume: Higher volumes add strength to the Support or Resistance. Higher volumes indicates more traders have the same sentiment at a particular time frame.

What happens when Support or Resistance Breaks?
The market sentiments is not the same at all the times, as it depends on a lot of factors, results in breakout of Supports and Resistance. Support once broken acts as a resistance in future while resistance broken act as a new support in future. The longer the period the support/resistance line holds before break, the stronger the reversal is.

Example of Support and Resistance With Example

Shapes of Support and Resistance?
If you look at the chart patterns traders may come across different levels of support and resistance. For example in an uptrend it can be a sloping upwards,or it can be a horizontal in case of sideways etc. Therefore on the basis of that Supports and Resistance is of two types. They are:

1. Horizontal Supports and Resistance (Equal Highs and equal lows)
2. Slanting or diagonal Supports and Resistance (Higher highs and higher lows or Lower highs and lower lows)
3. More smoothened lines formed by moving average.
4. Fixed price like pivot or Fibonacci retracement levels.

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Support Basics Resistance Basics