Support and Resistance

One of the basics of technical analysis is the ability to determine a stock's support and resistance points, levels at which the stock begins to pick up steam and begins to drop. These are the high and low points at which a stock has historically traded and can warn a trader that a trade may be near completion. Support and resistance lines reflect the supply and demand forces that tug at a stock and help control the price.

Support is the stock's floor, the point at which the stock begins to sell for less and starts to attract buyers. Support generally acts as a stopping point for a stock's descent and can often mark the place when a stock is ready to stop falling and begin moving up. It is considered important when a stock's price falls below a support level, known as breaking support.

Resistance is the stock's ceiling, the point at which the stock's rise begins to slow down and denotes a time for buyers to take any profits they might have made. Resistance acts as a stopping point for a stock's ascent and can often mark the place when a stock is ready to cease rising and begin to reverse its trend.

This is how to easily remember support and resistance:

• Support is like the floor of a house; it supports your weight and all the furniture and appliances in the house. Something that fell through the floor would be considered significant.
• Resistance is like the ceiling of a house; items thrown upward toward the ceiling can go no further and return to earth. Something that plows through the ceiling of a house would be considered significant.

Support and Resitance by BetterTrades Charts