| Support and Resistance Levels | | | | analysis are not a particularly difficult concept if you |
| When looking at support and resistance levels and | | | | understand what you're seeing. Once you have |
| integrating how they each work - you should first | | | | selected your trend line as the stock approaches its |
| refresh your memory with the definitions of each | | | | support level, it will signal that this is probably about |
| word. The dictionary offers the following descriptions: | | | | the time that you should consider purchasing a new |
| Support (verb) is defined as the ability to sustain or | | | | position as it's reached a 'low price' peak. The same is |
| withstand without giving way; to serve as a prop | | | | true when considering the sale of a position, that |
| for; resistance (noun) is defined as the act or power | | | | when it reaches its resistance levels it may be the |
| of resisting, opposing, or withstanding. | | | | time to consider liquidating your position as the price |
| While a new investor might be confused by the | | | | is approaching its highest level. |
| terminology that seasoned traders use this is perhaps | | | | How to use the Trendline for Support and Resistance |
| one of the easiest technical analysis tools that you | | | | Levels |
| will learn. Very simply, support and resistance levels | | | | It a normal financial market, assets will trend up and |
| assume that a price will seldom break through past a | | | | down and therefore price barriers will change over |
| low level as it declines in price (i.e. support) and that a | | | | time. Trendlines will show that when the market is |
| price will seldom break through a high level as it | | | | heading in a positive direction prices tend to slow and |
| increases in price.(i.e. resistance). | | | | pull back towards the trendline which is often a result |
| Most traders use what is defined as a 'trend line' to | | | | of profit taking resulting in the price of the position |
| establish support and resistance levels that they | | | | pulling back slightly or even stopping all movement |
| believe will guide the price of a stock. A trend line is | | | | creating a 'top'. Some traders also use the trendline |
| formed when you draw a diagonal line between more | | | | when the market is reflecting a decrease in price but |
| than two price pivot points. These 'trend lines' are | | | | forming a trendline of declining values which would |
| often used to determine when it is the best time to | | | | allow them to enter a short position. Typically traders |
| buy or sell a particular security. | | | | are comfortable that the underlying value of the |
| When a trader is using the support and resistance | | | | position will sustain the pricing of the position so that |
| levels they typically understand that occasionally a | | | | it does not fall prey to traders who drive the prices |
| trade will go past a support level and when this | | | | higher or lower. |
| happens, that support level is typically considered to | | | | It's also important to understand that support and |
| be a new resistance level and of course the opposite | | | | resistance levels may be governed by round price |
| is true as well. The typical trader will use charts that | | | | effects since many traders feel more comfortable |
| are based on specific intervals - it's not sensible to | | | | that any position may be fairly well valued at any |
| use an annual chart if you're a day trader (or a short | | | | given level. Often because of the number of orders |
| term trader) just as it would not be sensible to use a | | | | that may be placed at these levels they will act as |
| daily chart if you're a long term trader. Traders are | | | | strong resistance or support levels. |
| looking for signals that a price is showing higher highs | | | | While there are other more complex methods of |
| or lower lows which typically will tend to signal a | | | | analysis, the interpretation of trends and trendlines |
| change in the prices trend. | | | | should always be what is reviewed when considering |
| How to use a support and resistance level | | | | any type of trading. |
| Support and resistance levels when used for trading | | | | |