In this blog post, we will explore the fundamental concepts of support and resistance in trading. Learn how to identify key levels of support and resistance, and how to use this knowledge to make accurate decisions in trading. Whether you are a beginner or an experienced trader, this post will provide valuable insights into the world of support and resistance.
Support and Resistance are two fundamental concepts in technical analysis we will try to understand their meaning and practical uses in trading. Prices move due to supply and demand in the market. When demand is higher than supply then prices rise and vice versa. Sometimes, prices move in a range or sideways when both supply or demand are in equilibrium. It's common knowledge that prices always move in a zigzag way or pause for a while before moving further. When the price pauses temporarily at certain levels in its upward journey and resists to stop going further it's called resistance. That means resistance is that level where uptrend is expected to pause temporarily.
When the price starts falling after a good upmove and pauses temporarily preventing the price to stop falling any further, it's called support. That means support is that level where a downtrend is expected to pause temporarily.
Support and resistance are the zones where the price pauses or takes reversal (U-turn) before continuing its primary trend.
What is Support?
Support is an area (of value) where down move temporarily pauses and bounces back due to excessive demand. The prices become more attractive and buyers are larger in numbers than the sellers.
What is Resistance?
Resistance is an area where an uptrend temporarily pauses and price does not move further or takes reversal due to excessive supply. The buyers are not ready to buy at a high price. The sellers are larger in numbers than the buyers.
We can find support or resistance in any time frame 15 minutes, 30 minutes, 1 hour daily, weekly, monthly. Longer the time frame, the more significant it is. When we mark levels of support resistance in a higher time-frame we can consider the levels as major support or resistance levels.
When are support and resistance broken?
The support and resistance on longer time frames do not break easily. It needs to be tested multiple times to be broken. Just think of a wall, if it is hammered again and again it gets weaker and finally gets broken. So, if any support or resistance is tested multiple times it gets weaker and eventually breaks. When the market goes up, it moves at a slow pace but when it falls, it dips at a great speed. Don't give importance to random support areas. When it falls it will reach to its major support area. If it has tested 4-5 times the support area, then it is likely to break that support area and will continue its downward journey. One can buy at support or sell when it breaks. We should have a clear concept about the overall market during that time.
How support and resistance interchange their role?
Whenever particular support or resistance is broken, it reverses it’s role. When the support is broken and price falls below that level, that support level becomes resistance. Next time, when price starts going up again after a downtrend that level becomes resistance which was a support earlier.
Similarly, when the resistance is broken and the price breaks out above that resistance level, that level becomes support. Next time when the price comes down after an uptrend, the same level becomes support which was a resistance earlier.
Example: Previous resistance became support
Example: Previous support became resistance
When the market is in a downtrend it always tries to reverse from resistance levels. There is a sharp reversal from the resistance zones, when it attempts to go up. In this condition, sell on rise works better or sell when breaks support.
When the market is in an uptrend, it always tries to bounce back from the support levels whenever it falls after a good upmove. In this condition, buy on dips works best or buy when it breaks the next resistance.
For positional/long term investment, it is advisable to do analysis on daily and weekly time-frame and use 15 minutes for entry. For intraday trade do your analysis on 15 minutes time-frame and use 5 minutes for entry.
Conclusion: We hope you have got some useful informations regarding the concepts about support and resistance. In the future posts we will come up with more informative articles on support and resistance, so continue reading and supporting us.
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
