What is Support?
Support represents a low level to which a stock price reaches over time. Upon reaching support traders start buying that stock. Reaction of that buying causes a stock price to stop dropping and start rising.
What is Resistance?
Resistance represents a high level to which stock price reaches over time. Upon reaching resistance traders start to sell stock. This selling causes a stock price to stop rising and start dropping.
Why Support and Resistance Important?
In my opinion support and resistance are most important part of technical analysis. Why so? Because support holds the stock price to a low level, that justifies the price of that particular stock at that time or we can say stock is not underpriced.
Resistance rejects the stock price from a higher level that justifies stock price is not overpriced.
How can we identify Support and Resistance?
Let’s take example of JSW Steel stock chart. Here see that how price got resistance from 740 (approx.) and took support from 700-690 (approx.). I prefer to mark support and resistance as zones and not line (small tip for you guys!!).
But do you see something interesting over here? If you found that thing It’s great and kudos to you but of you couldn’t no issue. I am here for you. Try to understand how support and resistance works. See when price got rejected from 740 at 2 level and broke down the support level at 3 of 700-690. It became resistance at 4. In sort “support became resistance”. It is also true for resistance as well that is “resistance became support”
Now we are able to identify support and resistance correct! Let’s move to next advance level of support resistance.
Are support and resistance only horizontal zones?
No of course not. Another type of support and resistance are Trend lines. Trend lines tells that price is taking support and resistance from trend line. See example below…
Here we can see before price breakout. Price took 3 times resistance from trend line above. Similarly, price took support from below trend line.
Is there any timeframe on which we can mark support and resistance?
Yes, for sure. That depends upon what kind of trading you do. Are you intraday trader? Then 15 min time frame would be best for you to mark Support & Resistance. For Swing trader mark support & resistance on timeframe like 1 hour and 4 hours. Investors do not have to mark any kind of support & resistance.
So, we learnt something Interesting in this blog. Hope you liked the content. If you have any question write below in comment section. I would happy to answer them. See you soon ….
