Support and resistance are referred in technical analysis.
Support
A support level is a price level where the price stop further going down. The price then is more likely to go up from this level.
Resistance
A resistance level is the opposite of a support level. A resistance level is a price level where the price stop further going up. The price then is more likely to go down from this level.
PIVOT POINTS
A pivot point is used in technical analysis as a predictive indicator of market movement. A pivot point is calculated as an average of high, low and close prices from the performance of a market in the prior trading period.
Pivot point are used by traders to objectively determine support and resistance levels.
If the market in the following period trades above the pivot point it is usually evaluated as a bullish sentiment, whereas trading below the pivot point is seen as bearish.
Most commonly, it is the arithmetic average of the high (H), low (L), and closing (C) prices of the market in the prior trading period:
P = (H + L + C) / 3.
Price support and resistance levels are key trading tools.
The first and most significant level of support (S1) and resistance (R1).
P = PIVOT POINT
H = High Price
L = Low Price
These are taken at some previous trading range.
R1 = P + (P − L) = 2×P − L
S1 = P − (H − P) = 2×P − H
Thus, these levels may simply be calculated by subtracting the previous low (L) and high (H) price, respectively, from twice the pivot point value:[
The second set of resistance (R2) and support (S2) levels are above and below, respectively, the first set.
R2 = P + (H − L)
S2 = P − (H − L)
Commonly a third set is also calculated,
R3 = H + 2×(P − L) = R1 + (H − L)
S3 = L − 2×(H − P) = S1 − (H − L)
The first and most significant level of support (S1) and resistance (R1).
P = PIVOT POINT
H = High Price
L = Low Price
These are taken at some previous trading range.
R1 = P + (P − L) = 2×P − L
S1 = P − (H − P) = 2×P − H
Thus, these levels may simply be calculated by subtracting the previous low (L) and high (H) price, respectively, from twice the pivot point value:[
The second set of resistance (R2) and support (S2) levels are above and below, respectively, the first set.
R2 = P + (H − L)
S2 = P − (H − L)
Commonly a third set is also calculated,
R3 = H + 2×(P − L) = R1 + (H − L)
S3 = L − 2×(H − P) = S1 − (H − L)
Trend Line
A trend line is formed when a diagonal line can be drawn between two or more price pivot points. They are commonly used to identify entry and exit investment timing when trading securities.
A trend line is a bounding line for the price movement of a security. A support trend line is formed when a securities price decreases and then rebounds at a pivot point that aligns with at least two previous support pivot points. Similarly a resistance trend line is formed when a securities price increases and then rebounds at a pivot point that aligns with at least two previous resistance pivot points.
If a stock price is moving between support and resistance trend lines, then a basic investment strategy commonly used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover the short at support.
When price action breaks through the principal trend line of an existing trend, it is evidence that the trend may be going to fail, and a trader may consider trading in the opposite direction to the existing trend, or exiting positions in the direction of the trend.
A trend line is a bounding line for the price movement of a security. A support trend line is formed when a securities price decreases and then rebounds at a pivot point that aligns with at least two previous support pivot points. Similarly a resistance trend line is formed when a securities price increases and then rebounds at a pivot point that aligns with at least two previous resistance pivot points.
If a stock price is moving between support and resistance trend lines, then a basic investment strategy commonly used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover the short at support.
When price action breaks through the principal trend line of an existing trend, it is evidence that the trend may be going to fail, and a trader may consider trading in the opposite direction to the existing trend, or exiting positions in the direction of the trend.
Identifying support and Resistance levels
Support and resistance levels can be identified by trend linesThe more often a support/resistance level is tested (touched and bounced off by price), the more significance given to that specific level.
If a price breaks past a support level, that support level often becomes a new resistance level. The opposite is true as well, if price breaks a resistance level, it will often find support at that level in the future.
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