What do you mean by Support & Resistance in a Technical Analysis Chart?

Nilesh Jain

29 Oct 2016

Support

A straight line that connects three or more data points of a stock’s closing price or low price is called a support.

Support is the point where buying pressure is more than the selling pressure or you can say demand is greater than the supply. When stocks trades near support level it can be utilized as buying opportunity by keeping support as stop loss for your trade. Support is the psychological point where traders are willing to buy on the expectation that the stock price won’t drop more.

Resistance

Resistance is the point where selling pressure is more than the buying pressure or you can say supply is greater than the demand.

Resistance is the psychological point where traders are willing to sell with the expectation that the stock price won’t increase more. It is also considered as ceiling because these price levels prevent the stock from moving the price upward. When the stock trades near resistance level, trader/investor can liquidate his buy position or he can use this as a selling opportunity by keeping the resistance line as stop loss.

Note: Once a resistance or support level is broken, its role is reversed. If the price falls below support level, that level becomes resistance, if the price rises above resistance level, that level will act as a support level.

Support & Resistance in Technical analysis of stocks

Support and resistance in technical analysis of stocks

As you can see from the above chart, the stock of DWARKESH has taken a support at around 182 levels and resistance at the level of 216.

Rules to determine importance of Support & Resistance

1. The more number of times the price halts or bounces from a particular price, the greater is its importance as support & resistance level.

2. The greater volume traded at a support & resistance level, greater is its importance.

Summary:

Support and Resistance are areas on the chart where price reverses temporarily or permanently. Hence it can be utilized to initiate buy and sell positions subsequently.

Support level occurs when the belief is that price will not fall further, while resistance level occurs when the belief is that the price will not move higher.

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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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What do you mean by Support & Resistance in a Technical Analysis Chart?

Nilesh Jain

29 Oct 2016

Support

A straight line that connects three or more data points of a stock’s closing price or low price is called a support.

Support is the point where buying pressure is more than the selling pressure or you can say demand is greater than the supply. When stocks trades near support level it can be utilized as buying opportunity by keeping support as stop loss for your trade. Support is the psychological point where traders are willing to buy on the expectation that the stock price won’t drop more.

Resistance

Resistance is the point where selling pressure is more than the buying pressure or you can say supply is greater than the demand.

Resistance is the psychological point where traders are willing to sell with the expectation that the stock price won’t increase more. It is also considered as ceiling because these price levels prevent the stock from moving the price upward. When the stock trades near resistance level, trader/investor can liquidate his buy position or he can use this as a selling opportunity by keeping the resistance line as stop loss.

Note: Once a resistance or support level is broken, its role is reversed. If the price falls below support level, that level becomes resistance, if the price rises above resistance level, that level will act as a support level.

Support & Resistance in Technical analysis of stocks

Support and resistance in technical analysis of stocks

As you can see from the above chart, the stock of DWARKESH has taken a support at around 182 levels and resistance at the level of 216.

Rules to determine importance of Support & Resistance

1. The more number of times the price halts or bounces from a particular price, the greater is its importance as support & resistance level.

2. The greater volume traded at a support & resistance level, greater is its importance.

Summary:

Support and Resistance are areas on the chart where price reverses temporarily or permanently. Hence it can be utilized to initiate buy and sell positions subsequently.

Support level occurs when the belief is that price will not fall further, while resistance level occurs when the belief is that the price will not move higher.

Have Referral Code?