30 November 2012

What do you mean by support and resistance?

Support and resistance represent key junctures where the forces of supply and demand meet. 
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell .Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. After a resistance level is penetrated, it often becomes a support level this is because buyers who didn't buy at that price before it went up are now willing to buy at that price. Support and resistance play different roles in uptrends and downtrends.....
In an uptrend, support is where a pullback from a rally should end. In a downtrend, resistance is where a pullback from a decline should end. When price pushes above resistance, it becomes a new support level. When price falls below support, that level becomes resistance.
How can Support & Resistant Levels help you make profitable trading decisions?

Identification of key support and resistance levels is an essential ingredient to successful and profitable trading. If a security is approaching an important support level, it can serve as an alert to be extra vigilant in looking for signs of increased buying pressure and a potential reversal. If a security is approaching a resistance level, it can act as an alert to look for signs of increased selling pressure and potential reversal.

If a support or resistance level is broken, it signals that the relationship between supply and demand has changed. A resistance breakout signals that demand bulls has gained the upper hand and a support break signals that supply bears has won the battle.

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