Concept Of Support and Resistance & Roles Exchange

2023년 9월 12일

Defination Of Support and Resistance levels-:
The support and resistance (S&R) are specific price points on a chart expected to attract the maximum amount of either buying or selling. The support price is a price at which one can expect more buyers than sellers. Likewise, the resistance price is a price at which one can expect more sellers than buyers.

Particular defination-:

Resistance
As the name suggests, resistance is something which stops the price from rising further. The resistance level is a price point on the chart where traders expect maximum supply (in terms of selling) for the stock/index. The resistance level is always above the current market price.

The likelihood of the price rising to the resistance level, consolidating, absorbing all the supply, and declining is high. The resistance is one of the critical technical analysis tools which market participants look at in a rising market. The resistance often acts as a trigger to sell.

Support
understanding the support level should be quite simple and intuitive. As the name suggests, support is something that prevents the price from falling further. The support level is a price point on the chart where the trader expects maximum demand (in terms of buying) coming into the stock/index. Whenever the price falls to the support line, it is likely to bounce back. The support level is always below the current market price.


Reliability of S&R
The support and resistance lines are only indicative of a possible reversal of prices. They by no means should be taken for ascertain. Like anything else in technical analysis, one should weigh the possibility of an event occurring (based on patterns) in terms of probability.


Key takeaways from this chapter
1-S&R are price points on the chart
2-Support is a price point below the current market price that indicate buying interest.
3-Resistance is a price point above the current market price that indicate selling interest.
4-To identify S&R, place a horizontal line in such a way that it connects at least 3 price action zones, well-spaced in time. The more number of price action zones (well spaced in time) the horizontal line connects, the stronger is S&R
5-S&R can be used to identify targets for the trade. For a long trade, look for the immediate resistance level as the target. For a short trade, look for the immediate support level as the target.
6-Lastly, comply with the checklist for optimal trading results


How support and resistance changes their roles-:
If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support. As the price moves past a level of support or resistance, it is thought that supply and demand has shifted, causing the breached level to reverse its role.

Examples by Snapshots-:

Support become Resistance


Resistance become Support



Conclusion
Technical analysis is one approach of attempting to determine the future price of a security or market. Some investors may use fundamental analysis and technical analysis together; they’ll use fundamental analysis to determine what to buy and technical analysis to determine when to buy.

Don’t forget that technical analysis is not an exact science and it is subject to interpretation. If you continue your study of technical analysis, you’ll likely hear someone say it is more of an art than a science. As with any discipline, it takes work and dedication to become adept at it.

Best Regards- Amit rajan