Ever hear on financial news the major indexes being discussed and the reporter says something like,” Looking for support on the S&P around the 2400 area.” Or maybe you’ve heard, “This will be a key area of resistance to push through.” Do we truly understand support and resistance? Well we are here to give you a clear understanding about both.
Support can be summed up as an area where bargain buying takes place. This buying halts the movement of the retracement or correction that is occurring. Support levels more times than not are areas where buyers step back in again to accumulate shares after a stock corrects due to price running up too quickly away from fundamentals al la speculation.
These are great areas to look for an entry into a stock.
See images of different support.
Resistance is the price area where a stock reverses, retraces or stalls. There are also 3 different levels for resistance: weak, moderate and strong.
Resistance affects all bottom completions, profit taking, and tops being created.
Resistance in the short term creates levels where profit taking occurs.
When a stock gets high in price away from fundamentals and large institutions are rotating out, that results in the stock topping. This area in price will now become moderate to strong resistance.
Recognizing any of the above occurring, it would be smart to take profits or think about exiting the trade.
When you start to understand how each effects price in the short and long term, you will be better prepared to exit positions better or know what area of price would be good to look at for an entry.
Please message us with ANY questions guys – Trend Addicts