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FINANCIAL CHRONICLE™ » CHRONICLE™ ANALYTICS » Support and Resistance

Support and Resistance

+19
rmark
sas
parackrama
saifullah123
rijayasooriya
Hiru
xhora
watchM
CHASE
SL.Market
ribuuthpala
gann
chap
sunda66
kam2011
intelstk
manula
JennyFunny
Quibit
23 posters

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1Support and Resistance Empty Support and Resistance Sun Apr 24, 2011 8:22 pm

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

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Support and Resistance can best be explained as price levels that either support prices from moving below a certain level or resist the price from moving above a certain level.

In other words these are price levels that prevent the prices from moving above or below a certain level. Though it sounds simple at first support and resistance can come in various forms and is a little difficult to master than it first appears. So let's get the basics right! Let's look at a simple example to understand Resistance.

Think you bought a share of a hypothetical company, XYZ PLC at a price of Rs. 25. You have been following the price of this share to note that the price fails to pass the Rs. 29 level although it has come closer to passing it many a time. So, this level of Rs. 29 acts as a resistance level or as a "ceiling" for the XYZ PLC stock price. In other words this price level prevents the price of XYZ share from moving above it.

The Support level is the opposite of this. If you look at a few stock charts randomly, you will see that prices of certain stocks fail to move below certain levels. Those levels are considered as a support level or a "floor" for that stock. This price level supports the price of that stock from moving below.

We'll now look at these graphically.

[You must be registered and logged in to see this image.]

As you can see form the above graph, Rs. 38 acts as a ceiling for this stock. This is the Resistance level. Prices have come closer to breaching that level but have failed a couple of times. On the other hand, Rs 30.50 acts as a floor or the Support level for the stock.

So if you hold a stock which has reached a Resistance level, which has been tested several times but not broken, it is a SELL signal because the price is having a hard time moving above that level. And if you spot a stock which is on the Support level then it is a BUY signal because the price might not fall beyond that level. Makes sense, right? However, it is important that you correctly identify these Support and Resistance levels before making trading decisions.

Round numbers such as 10, 20, 50, 100 are often cited to be important for Support and Resistance levels because at these levels most traders tend to make buy or sell decisions. The reason behind this is largely psychological.

Further, it is generally considered that once the price of a share moves above a Resistance level it automatically becomes a Support level for that stock and the price will not move below that level. On the other hand, if the price falls below a Support level that level becomes the Resistance level for that stock. This is called the "Role Reversal" of Support and Resistance. In most cases, a stock will have a Support and Resistance level and will trade within this area until it is breached and new levels are established. The following graph explains the Role Reversal more clearly, where the price level Rs. 30.50 first acts as a Resistance level and once it is breached reverses its role to a Support level.

[You must be registered and logged in to see this image.]

If you identify a Support or a Resistance level and is confident about trading at this level, it is advisable that you do not place the order at that price level itself. This is because the price does not normally reach this level but moves closer to it. So when placing the trade the price should be quoted just a few points above in the case of a Support level or just a few points below in the case of a Resistance level.

You will hear more about Support and Resistance as we move on as this concept is used in conjunction with other techniques as well.

Sri Lanka Equity Analytics
www.srilankaequity.com

2Support and Resistance Empty Re: Support and Resistance Sat Jun 04, 2011 11:07 am

JennyFunny


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Great job..why don't you create a topic..for how to identify if the Support/Resistance line is going to broken..

Smile

3Support and Resistance Empty Re: Support and Resistance Sun Jun 05, 2011 10:00 am

manula


Vice President - Equity Analytics
Vice President - Equity Analytics

Thanks ...Great job.. Waiting to here more from same topic. Same way like to thank QUIBIT and all members in this forum and this forum is great help to all and mainly for us who are working in overseas and no any other contact to get advice. I am getting good understanding about the market, fundamentals so on from this forum.

I am buying through the CDAX system and very difficult to contact the brokers to get some advice mainly they are busy and the telephone cost. So this forum help us lot. Thanks once again.

4Support and Resistance Empty Re: Support and Resistance Sun Jun 05, 2011 12:02 pm

JennyFunny


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

well said manula..this forum has been very helpful..Smile

5Support and Resistance Empty Re: Support and Resistance Sun Jun 05, 2011 12:14 pm

intelstk


Senior Equity Analytic
Senior Equity Analytic

I was confused with these terms before reading this. Thanks for posting it.

from where we can get these charts??

6Support and Resistance Empty Re: Support and Resistance Sun Jun 05, 2011 1:13 pm

kam2011


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Thanks Quibit, We learn lot from your posts.

7Support and Resistance Empty Re: Support and Resistance Thu Jun 16, 2011 10:29 am

sunda66


Stock Trader

This is relevant to currency and option trading not clear how this is relevant to Sri Lanka.

8Support and Resistance Empty Re: Support and Resistance Thu Jun 23, 2011 11:16 pm

chap


Senior Equity Analytic
Senior Equity Analytic

thanks.. Very Happy

9Support and Resistance Empty Re: Support and Resistance Fri Jun 24, 2011 8:25 am

gann

gann
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

The momentum should slow down when a stock is reaching a support or resistance point for us to expect the S/R to hold. S/R is just a guideline. We have to wait for confirmation. ie: wait for the stock to bounce off the S/R line.
S/R line can be horizontal, Ascending or Descending

10Support and Resistance Empty Re: Support and Resistance Tue Jun 28, 2011 3:48 pm

ribuuthpala


Stock Trader

Good job!!! Smile

11Support and Resistance Empty Re: Support and Resistance Tue Jun 28, 2011 4:01 pm

SL.Market

SL.Market
Vice President - Equity Analytics
Vice President - Equity Analytics

Nice work, very much help for beginners on pattern read.
and expect more on this

Real winners are those who understand the pattern between the support and resistance before it happens

Thanks somuch on this works
Happy Trading

12Support and Resistance Empty Re: Support and Resistance Tue Jun 28, 2011 7:42 pm

kam2011


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

I highly apppriciate this. Very clear and useful for most of the members. Value of this forum is rising every day. As Admin you encourage mambers to trade in the stock market meaningfuly and logicaly. thank you.

13Support and Resistance Empty Re: Support and Resistance Tue Jun 28, 2011 8:18 pm

CHASE

CHASE
Manager - Equity Analytics
Manager - Equity Analytics

Thank you Quibit. good one

14Support and Resistance Empty Re: Support and Resistance Wed Jun 29, 2011 1:47 pm

watchM


Stock Trader

quibit,

I am also using direct fn, but could not find the relevant indicator to check this. could you please help me how to..

15Support and Resistance Empty Re: Support and Resistance Wed Jun 29, 2011 1:49 pm

xhora

xhora
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

watchM wrote:quibit,

I am also using direct fn, but could not find the relevant indicator to check this. could you please help me how to..

There are no indicators in DFN to check resistance/ support. just check the graph visually.

16Support and Resistance Empty Re: Support and Resistance Wed Jun 29, 2011 2:00 pm

Hiru


Manager - Equity Analytics
Manager - Equity Analytics

Great! This was the topic I was following on last few days together with how SMA and EMA forecast, so this is really helpful.

17Support and Resistance Empty Re: Support and Resistance Wed Jun 29, 2011 2:25 pm

rijayasooriya

rijayasooriya
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

A good article.
But problem I am facing is When I put my sell order that level automatically becomes resistance level.

18Support and Resistance Empty Re: Support and Resistance Thu Jun 30, 2011 8:55 pm

gann

gann
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

[You must be registered and logged in to see this image.]


Would the support hold for cfvf?

19Support and Resistance Empty Re: Support and Resistance Sat Jul 16, 2011 1:41 pm

saifullah123


Stock Trader

Nice post.Support and Resistance are so important.Graphs are very helpful.I learn lot of things.Thanks.

20Support and Resistance Empty Re: Support and Resistance Sun Jul 17, 2011 11:03 am

JennyFunny


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Very use full piece of information..when it comes to technical analysis..

21Support and Resistance Empty Re: Support and Resistance Wed Aug 31, 2011 2:59 pm

parackrama

parackrama
Senior Equity Analytic
Senior Equity Analytic

very important article. thank you for helping new investors.

22Support and Resistance Empty Re: Support and Resistance Fri Sep 02, 2011 10:15 pm

sas

sas
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

thanks for creation of this forum & sharing, +rep

23Support and Resistance Empty Re: Support and Resistance Tue Sep 27, 2011 7:20 pm

rmark

rmark
Manager - Equity Analytics
Manager - Equity Analytics

Thank you Quibit

24Support and Resistance Empty Re: Support and Resistance Wed May 16, 2012 3:42 pm

peoplestar


Stock Trader



A nice post, I have seen ever about support and resistance in my trading life. You have explained well. You have been able to make it clear to me. Thank you so much.

http://freeebook0.blogspot.com

25Support and Resistance Empty Re: Support and Resistance Tue Nov 20, 2012 9:44 am

dasunlover


Stock Trader

Original Articales - http://goo.gl/sV7tb

http://dasunartworks.com

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