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Support & Resistance

Support and resistance are one the key attributes of chart analysis, as it represents key juncture where the forces of supply and demand meet. In simple economic terms when the demand of a given stock is higher the prices are likely to increase, if this demand is not met by sellers

What is Support?

Support is the price level at which buyers are expected to enter the market and this will prevent the price from falling further.

What is Resistance?

Resistance is when the price stops going up. This is a level where sellers are expected to enter the market

Trendlines

Technical analysis attempts to gauge the strength and direction of a trend, once the trend is in motion it will continue in that direction for some time. Once the trend is determined early, the trend can be followed and more profit can be made.

The markets can only move in one of three ways; up, down, or sideways. That’s it. Prices however do not move in a straight line, they move by zig-zagging updown-up-down, so you will have- • An up trend
• A downtrend, and
• A sideways movement
These trends are illustrated in the following chart.

Round Numbers

Often round numbers does act as a strong support and resistance. Often we will see strong resistance at key round numbers, and once this levels are penetrated than this often leads to heavy buying and pushing prices even further. Amateur traders often tend to place trades at these key levels, and also putting stops, this in turn can create a momentum in a continuation of the trend once the stops are hit

Moving Averages
Very few traders use moving averages as a dynamic support & resistance, those who do use it tend to be successful traders. As can be seen on the following chart of AUDUSD, the 13 EMA has provided a very strong support, and when this EMA has been broken, it has acted as a barrier to price increase.

Conclusion

Understanding and the use of support & resistance can drastically improve the results of any trader, as it can enable a trader to forecast where the prices are likely to prop up in the event of a correction or indeed a rally could just stop at a major resistance level, enabling the trader to bank profits and also to consider reversing the position.

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