Support and resistance
for trading is a small article on the definition of these concepts
with pratical examples.
The first critical terms
for understanding the basics of technical analysis are “Support”
and “Resistance.” These terms are used by technical traders
on a daily basis, so understanding what these mean will be vital for
charting analysis.
Examples of Support
First, “support” is
thought of as an area where buyers have previously stepped into the
market in order to raise the value of an asset. The term applies to
price activity in all types of assets (stocks, commodities,
currencies, etc) and in the following charts we will look for
examples of support for each of these categories. Below are examples
of support (shown in blue lines) in a chart showing the S&P 500:
These blue lines show
areas where buyers have helped propel market prices higher. Below is
a similar example in the EUR/USD currency pair:
Finally, so that we can
see that the term applies to all asset classes, we will see similar
examples of support on the commodity of oil:
Examples of Resistance
Conversely, “resistance”
is thought of as an area where sellers have previously stepped into
the market in order to decrease the value of anasset. The term also
applies to price activity in all types of assets and in the following
charts we will look for examples of resistance for each of these
categories. Below are examples of resistance (again shown in blue
lines) in a chart showing the S&P 500:
These blue lines show
areas where sellers have helped push down (or resist) market prices.
Below is a similar example in the EUR/USD currency pair:
Finally, an example of
resistance areas shown in an oil chart:
As a final point, it
should be remembered that support and resistance levels can be found
on any time frame and for any type of asset. The main point you will
need to remember is that there are previous pricing areas where
buyers or sellers entered the market, which creates an increased
possibility that prices will exhibit the same behavior (either rising
or falling) if prices reaches those areas again in the future.
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