What are support and resistance levels?
Support and resistance levels are two levels on a price chart that appear to mark the upper and lower limit within which that stock’s price is likely to move. The support level is the lowest level the price is likely to fall to, before it bounces back up. The resistance level is the highest level the price is likely to rise to, before it dips again.
How are support and resistance levels helpful in trading?
The resistance level of a stock often marks the level when a stock rally runs out of gas. Conversely, as a price gets closer to the support level it signals a buying opportunity.
Protips in using support and resistance levels
Keep these tips in mind as you analyse stock price patterns:
● The more often you see a stock price hit support or resistance levels over time, the stronger these levels become as signals of future price movements. These signals also act as psychological barriers for traders who will buy or sell a stock when a certain level is reached.
● These levels are helpful in managing risk by placing stop orders to buy or sell a stock when the price reaches a certain point.
● If the price goes above the resistance level or below the support level, observe it for a while. It may be that the price is 「testing」 that level and will fall back with the historic levels, or it could signal a breakout where new support and resistance levels are established.
Example of support and resistance levels
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