The support and resistance (S&R) are specific price points on a chart which are expected to attract 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.
The
Resistance
Resistance is 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.
Resistance is caused by heavy selling that overpowers buying and occurs at specific Resistance levels.
The Support
Having learnt about resistance, understanding the support level should be quite simple and intuitive. As the name suggests, the support is 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.
Support is caused by heavy buying that overpowers selling and occurs at specific Support levels.
IMPORTANT POINTS TO BE NOTED
Entry in
Confirmation Candle means in next candle.
Do Price Analysis
Don’t do time analysis
Time Analysis do only for Scalp trading and Intraday Trading
Construction/Drawing
of the Support and Resistance level
Here
is a 4 step guide to help you understand how to identify and construct the support
and the resistance line.
Step
1:- Load data points –
If the objective is to identify short term S&R load at least 3-6 months of
data points. If you want to identify long term S&R, load at least 12 – 18
months of data points. When you load many data points, the chart looks compressed.
1. Long term S&R – is useful for swing trading
2.
Short term S&R – is useful intraday and BTST(Buy Today and Sell Tomorrow)
trades
Step
2:- Identify at least 3 price action
zones – A price action zone can be described as ‘sticky points’ on chart
where the price has displayed at least one of the behaviors:
1.
Hesitated to move up further after a brief up move
2.
Hesitated to move down further after a brief down move
3.
Sharp reversals at particular price point
Step
3:- Align the price action zones – When
you look at a 12 month chart, it is common to spot many price action zones. But
the trick is to identify at least 3 price action zones that are at the same
price level.
Step
4:- Fit a horizontal line – Connect
the three price action zones with a horizontal line. Based on where this line fits in with respect to the current
market price, it either becomes a support or resistance.
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