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Sri Lanka Equity Forum » Stock Market Charts & Graphs » Support and Resistance

Support and Resistance

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1 Support and Resistance on Sun Apr 24, 2011 8:22 pm

Quibit

avatar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
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Support and Resistance can best be explained as price levels that either support prices from moving below a certain level or resist the price from moving above a certain level.

In other words these are price levels that prevent the prices from moving above or below a certain level. Though it sounds simple at first support and resistance can come in various forms and is a little difficult to master than it first appears. So let's get the basics right! Let's look at a simple example to understand Resistance.

Think you bought a share of a hypothetical company, XYZ PLC at a price of Rs. 25. You have been following the price of this share to note that the price fails to pass the Rs. 29 level although it has come closer to passing it many a time. So, this level of Rs. 29 acts as a resistance level or as a "ceiling" for the XYZ PLC stock price. In other words this price level prevents the price of XYZ share from moving above it.

The Support level is the opposite of this. If you look at a few stock charts randomly, you will see that prices of certain stocks fail to move below certain levels. Those levels are considered as a support level or a "floor" for that stock. This price level supports the price of that stock from moving below.

We'll now look at these graphically.

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As you can see form the above graph, Rs. 38 acts as a ceiling for this stock. This is the Resistance level. Prices have come closer to breaching that level but have failed a couple of times. On the other hand, Rs 30.50 acts as a floor or the Support level for the stock.

So if you hold a stock which has reached a Resistance level, which has been tested several times but not broken, it is a SELL signal because the price is having a hard time moving above that level. And if you spot a stock which is on the Support level then it is a BUY signal because the price might not fall beyond that level. Makes sense, right? However, it is important that you correctly identify these Support and Resistance levels before making trading decisions.

Round numbers such as 10, 20, 50, 100 are often cited to be important for Support and Resistance levels because at these levels most traders tend to make buy or sell decisions. The reason behind this is largely psychological.

Further, it is generally considered that once the price of a share moves above a Resistance level it automatically becomes a Support level for that stock and the price will not move below that level. On the other hand, if the price falls below a Support level that level becomes the Resistance level for that stock. This is called the "Role Reversal" of Support and Resistance. In most cases, a stock will have a Support and Resistance level and will trade within this area until it is breached and new levels are established. The following graph explains the Role Reversal more clearly, where the price level Rs. 30.50 first acts as a Resistance level and once it is breached reverses its role to a Support level.

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If you identify a Support or a Resistance level and is confident about trading at this level, it is advisable that you do not place the order at that price level itself. This is because the price does not normally reach this level but moves closer to it. So when placing the trade the price should be quoted just a few points above in the case of a Support level or just a few points below in the case of a Resistance level.

You will hear more about Support and Resistance as we move on as this concept is used in conjunction with other techniques as well.

Sri Lanka Equity Analytics
www.srilankaequity.com

2 Re: Support and Resistance on Sat Jun 04, 2011 11:07 am

JennyFunny


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Great job..why don't you create a topic..for how to identify if the Support/Resistance line is going to broken..

Smile

3 Re: Support and Resistance on Sun Jun 05, 2011 10:00 am

manula


Vice President - Equity Analytics
Vice President - Equity Analytics
Thanks ...Great job.. Waiting to here more from same topic. Same way like to thank QUIBIT and all members in this forum and this forum is great help to all and mainly for us who are working in overseas and no any other contact to get advice. I am getting good understanding about the market, fundamentals so on from this forum.

I am buying through the CDAX system and very difficult to contact the brokers to get some advice mainly they are busy and the telephone cost. So this forum help us lot. Thanks once again.

4 Re: Support and Resistance on Sun Jun 05, 2011 12:02 pm

JennyFunny


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
well said manula..this forum has been very helpful..Smile

5 Re: Support and Resistance on Sun Jun 05, 2011 12:14 pm

intelstk


Senior Equity Analytic
Senior Equity Analytic
I was confused with these terms before reading this. Thanks for posting it.

from where we can get these charts??

6 Re: Support and Resistance on Sun Jun 05, 2011 1:13 pm

kam2011


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Thanks Quibit, We learn lot from your posts.

7 Re: Support and Resistance on Thu Jun 16, 2011 10:29 am

sunda66


Stock Trader
This is relevant to currency and option trading not clear how this is relevant to Sri Lanka.

8 Re: Support and Resistance on Thu Jun 23, 2011 11:16 pm

chap


Senior Equity Analytic
Senior Equity Analytic
thanks.. Very Happy

9 Re: Support and Resistance on Fri Jun 24, 2011 8:25 am

gann

avatar
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
The momentum should slow down when a stock is reaching a support or resistance point for us to expect the S/R to hold. S/R is just a guideline. We have to wait for confirmation. ie: wait for the stock to bounce off the S/R line.
S/R line can be horizontal, Ascending or Descending

10 Re: Support and Resistance on Tue Jun 28, 2011 3:48 pm

ribuuthpala


Stock Trader
Good job!!! Smile

11 Re: Support and Resistance on Tue Jun 28, 2011 4:01 pm

SL.Market

avatar
Vice President - Equity Analytics
Vice President - Equity Analytics
Nice work, very much help for beginners on pattern read.
and expect more on this

Real winners are those who understand the pattern between the support and resistance before it happens

Thanks somuch on this works
Happy Trading

12 Re: Support and Resistance on Tue Jun 28, 2011 7:42 pm

kam2011


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
I highly apppriciate this. Very clear and useful for most of the members. Value of this forum is rising every day. As Admin you encourage mambers to trade in the stock market meaningfuly and logicaly. thank you.

13 Re: Support and Resistance on Tue Jun 28, 2011 8:18 pm

CHASE

avatar
Manager - Equity Analytics
Manager - Equity Analytics
Thank you Quibit. good one

14 Re: Support and Resistance on Wed Jun 29, 2011 1:47 pm

watchM


Stock Trader
quibit,

I am also using direct fn, but could not find the relevant indicator to check this. could you please help me how to..

15 Re: Support and Resistance on Wed Jun 29, 2011 1:49 pm

xhora

avatar
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@watchM wrote:quibit,

I am also using direct fn, but could not find the relevant indicator to check this. could you please help me how to..

There are no indicators in DFN to check resistance/ support. just check the graph visually.

16 Re: Support and Resistance on Wed Jun 29, 2011 2:00 pm

Hiru


Manager - Equity Analytics
Manager - Equity Analytics
Great! This was the topic I was following on last few days together with how SMA and EMA forecast, so this is really helpful.

17 Re: Support and Resistance on Wed Jun 29, 2011 2:25 pm

rijayasooriya

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Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
A good article.
But problem I am facing is When I put my sell order that level automatically becomes resistance level.

18 Re: Support and Resistance on Thu Jun 30, 2011 8:55 pm

gann

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Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
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Would the support hold for cfvf?

19 Re: Support and Resistance on Sat Jul 16, 2011 1:41 pm

saifullah123


Stock Trader
Nice post.Support and Resistance are so important.Graphs are very helpful.I learn lot of things.Thanks.

20 Re: Support and Resistance on Sun Jul 17, 2011 11:03 am

JennyFunny


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Very use full piece of information..when it comes to technical analysis..

21 Re: Support and Resistance on Wed Aug 31, 2011 2:59 pm

parackrama

avatar
Senior Equity Analytic
Senior Equity Analytic
very important article. thank you for helping new investors.

22 Re: Support and Resistance on Fri Sep 02, 2011 10:15 pm

sas

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Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
thanks for creation of this forum & sharing, +rep

23 Re: Support and Resistance on Tue Sep 27, 2011 7:20 pm

rmark

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Manager - Equity Analytics
Manager - Equity Analytics
Thank you Quibit

24 Re: Support and Resistance on Wed May 16, 2012 3:42 pm

peoplestar


Stock Trader


A nice post, I have seen ever about support and resistance in my trading life. You have explained well. You have been able to make it clear to me. Thank you so much.

http://freeebook0.blogspot.com

25 Re: Support and Resistance on Tue Nov 20, 2012 9:44 am

dasunlover


Stock Trader
Original Articales - http://goo.gl/sV7tb

http://dasunartworks.com

26 Re: Support and Resistance on Mon Jan 07, 2013 2:42 am

vicorka


Stock Trader
Use pivot Point levels to calculate Support and Resistance Levels.

http://www.marketvolume.com/

27 Re: Support and Resistance on Tue Dec 06, 2016 10:35 pm

jehovah

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Equity Analytic
Equity Analytic
lol!

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