SUPPORT AND RESISTANCE : Part one

Support and resistance exist because people have memories. Our memories prompt us to buy and sell at certain levels. Buying and selling by crowds of traders creates support and resistance.


A ball hits the floor and bounces. It drops after it hits the ceiling. Support and resistance are like a floor and a ceiling, with prices sandwiched between them. Understanding support and resistance is essential for understanding price trends and chart patterns. Rating their strength helps you decide whether the trend is likely to continue or to reverse. Support is a price level where buying is strong enough to interrupt or reverse a downtrend. When a downtrend hits support, it bounces like a diver who hits the bottom and pushes away from it. Support is represented on a chart by a horizontal or near-horizontal line connecting several bottoms (Figure ).


Resistance is a price level where selling is strong enough to interrupt or reverse an uptrend. When an uptrend hits resistance, it stops or tumbles down like a man who hits his head on a branch while climbing a tree.Resistance is represented on a chart by a horizontal or near-horizontal line connecting several tops.


It is better to draw support and resistance lines across the edges of congestion areas instead of extreme prices. The edges show where masses of traders have changed their minds, while the extreme points reflect only panic among the weakest traders.


Minor support or resistance causes trends to pause, while major support or resistance causes them to reverse. Traders buy at support and sell at resistance, making their effectiveness a self-fulfilling prophecy.






Draw horizontal lines through the upper and lower edges of congestion areas. The bottom line marks the support-the level at which buyers overpower sellers. The upper line identifies resistance, where sellers overpower buyers. Areas of support and resistance often switch their roles.


Note how the level of support in March became the line of resistance in May. The strength of these barriers increases each time prices touch them and bounce away. Beware of false breakouts from support and resistance. The letter F marks false breakouts on this chart. Amateurs tend to follow breakouts, while professionals tend to fade (trade against) them. At the right edge of the chart, prices are hitting strong resistance. This is the time to look for a shorting opportunity, with a protective stop slightly above the line of resistance.


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