What is Support and Resistance?
A share is said to have taken Support at a price level when in a downward move, it stops and moves in the upward direction. Vice-versa, a share is said to have taken Resistance at a price level when in an upward move, it stops and moves in the downward direction.
How can I utilize the Support and Resistance theory?
Ideally in an Uptrend, one should buy or go long on every fall at a significant support level and in a Downtrend one should sell or go short on every rise at a significant resistance level.
ARE THERE ANY TOOLS FOR SUPPORT AND RESISTANCE?
Yes. Following are the tools for Support and Resistance:
- Significant Highs and Lows
Significant highs and lows are those levels from where the markets have turned up or have fallen down sharply in the past. When the stock prices test these levels anytime in the future, they will act as strong support and resistance levels.
A Trendline is another excellent tool which gives us important Support and Resistance levels. A trendline is a line joining 2 (preferably 3) or more significant highs or lows or 2 (preferably 3) important prices, which gives important support and resistance levels.