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Know support and Resistance

Support and Resistance

What is Support and Resistance?

Support and Resistance are points which tells you about the price levels of the stock. The price ranges between the support and resistance. It gives the trader a price indication about whether a stock may have a stop, reversal or continuation, which further helps traders to enter and exit in the market for best possible returns.
Duration of Support and Resistance?
Depending on the duration of the support and resistance formation it can be further categorized into:
1.Minor Support or Resistance ( A week Range)
2.Intermediate Support or Resistance ( A month Range)
3.Major Support or Resistance ( A year Range)

Minor Support or Resistance cause trends to slow or pause while major Support or Resistance cause reversal.


What decides the strength of Support and Resistance?
A number of factors a trader may want to look around to see the strength and to confirm it. They are:
1.Length: The longer the duration of Support or Resistance the more reliable and stronger it is. Longer duration shows more points, a price is hitting showing the positive sentiments.
2.Height: The broader the distance between the Support and Resistance the more powerful it is.
3.Volume : Higher volumes add strength to the Support or Resistance. Higher volumes indicates more traders have the same sentiment at a particular time frame.

What happens when Support or Resistance Breaks?

The market sentiments is not the same at all the times, as it depends on a lot of factors, results in breakout of Supports and Resistance. Support once broken acts as a resistance in future while resistance broken act as a new support in future.
What is the importance of Support and Resistance?

Support and Resistance are important in understanding and interpreting the market.
1.Supports and Resistance helps traders to identify trends (uptrend , downtrend or sideways market).
2.Supports and Resistance are the basic fundamentals to identify chart patterns like Head and Shoulder, Double Top, Double Bottom etc.
3.It also give signals to traders when to enter or buy a share, and when to exit or sell.

Shapes of Support and Resistance?
If you look at the chart patterns traders may come across different levels of support and resistance. For example in an uptrend it can be a sloping upwards,or it can be a horizontal in case of sideways etc. Therefore on the basis of that Supports and Resistance is of two types. They are:
1.Horizontal Supports and Resistance ( Equal Highs and equal lows)
2.Slanting or diagonal Supports and Resistance (Higher highs and higher lows or Lower highs and lower lows)

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