What is Support and Resistance?

The entry and exit price levels are important for any trader or investor in the stock market. One of the best ways to determine such levels is to identify the support and resistance levels of stock. The support and resistance levels are critical to knowing the market psychology and its further movement. In this article, you will learn about the concept of support and resistance.

What is Support Level?

A support is the price level that is strong enough to stop the stock price from moving to lower levels. In simple words, every time the stock price reaches the support level the stock bounce back and starts moving to higher levels. The demand for the stock at the support price level is much higher than the sellers.

What is Resistance Level?

A resistance level is opposite to the support level. It is that price level beyond which that stock price would find it hard to move. At this price level, a stock will have more sellers than buyers. Thus, the stock price is not expected to rise above the resistance price level.

What is Support?

To understand support and resistance you must look at the important levels on the candlestick charts. It will help you in identifying whether the price level is a buy or sell. At the support price, the stock has higher demand than the supply. The traders expect a good bounce for stock as they expect the maximum demand at that price. Before buying any stock in a failing market you must look at the support level indicator. This will help you in entering the stock at the correct price level where the buyers are much more than the sellers.

What is Resistance?

The resistance level on a candlestick chart reflects the price where the sellers would be more than the buyers. It is that price level on the chart where the traders expect maximum supply which will prevent the stock from rising further. Always remembers that resistance is a sell indicator. It is that level on which the market participant keeps an eye in the rising market.

Breakout Levels

Support and resistance levels give an idea to the trader about the entry and exit price of any stock. However, the trader must remember that these key levels can be broken. And when this happens, the stock finds new support and resistance levels on the chart. For example, if the support level is broken, the stock will continue to fall until it will find a new support level. Similarly, if the resistance level is broken, the stock would continue to rise until it finds a new resistance level.

Should Trader Rely on Support and Resistance Levels

In the stock market, there is no absolute certainty about any indicator. This applies to support and resistance levels as well. They both are indicative in nature and before buying or selling any stock you must consider several factors.

Use of Support and Resistance in Technical Analysis

The most difficult part for a trader is finding the accurate entry or exit points in stock. It is almost impossible to be correct every time in predicting the stock price movement. Therefore, support and resistance levels give a good understanding to a trader in determining the future price movement. Support and resistance levels help the traders in doing technical analysis and taking trading decisions.

The support and resistance are critical indicators for finding the direction of the stocks. A trader must keep in mind that stock prices can go beyond the support and resistance levels. Therefore, other factors must also be taken into consideration for doing technical analysis. If you want to learn technical analysis and various price indicators you may get in touch with Indira Securities.