| Support and resistance levels are perhaps the most | | | | sell a stock. Thus making this price level a support or |
| widely followed technical analysis indicators by any | | | | resistance level for that equity. |
| type of trader or investor. They are also considered | | | | 3. Market trends: In an upward moving market |
| as one of the most reliable indicators to predict | | | | breaching of one resistance level will boost the |
| market trends and to place stop-loss and profit | | | | confidence of buyers are and they will be ready to |
| taking orders. | | | | buy stocks at higher price levels, forming new |
| Support is the price level of an instrument on or | | | | resistance levels. Similarly in a downward moving |
| below the current price level that act as a barrier for | | | | market breaching of a support level boost confidence |
| downward movement of price. Resistance is the | | | | of sellers and a new resistance level is formed at |
| price level of an instrument on or above the current | | | | lower price levels. |
| price level that act as a barrier for upward | | | | 4. Fibonacci techniques: Fibonacci techniques (eg: |
| movement of price. Support and resistance levels are | | | | Fibonacci arc, fans, retracements, channels, time |
| identified from past price movements or the | | | | zones, extensions and clusters) are the most widely |
| instrument; they are the past price levels where the | | | | used tools for predicting future support and |
| prices have stabilized. There are many reasons for | | | | resistance levels. This widespread use followed by |
| this price stabilization. | | | | widespread entering of buy and sell orders at these |
| Reasons for formations of support and resistance | | | | levels has resulted in transformation of these price |
| levels. | | | | levels into support and resistance levels. |
| | | | 5. Other technical indicators: Like Stochastic, RSI and |
| 1. Buying and selling pressure: These are the most | | | | moving averages for entering buy and sell orders |
| basic causes of resistance and support level | | | | helped in formation of support and resistance levels. |
| formation. Very often, most traders try to buy | | | | The strength of a support or resistance level is |
| stocks (or other instruments) when they fall by | | | | inversely proportional to how many times it is |
| certain price causing the formation of a support level | | | | breached and directly proportional to how many |
| and most traders try to sell stocks when they rise | | | | times the price touched it. The strength of a support |
| by certain price. Automated trading systems which | | | | or resistance level increases in order of single (s) |
| generate buy and sell signals enhance this | | | | levels – price touched only once, double (d) levels |
| phenomenon. | | | | – price touched twice, triple (t) levels – price |
| 2. Round price levels: At certain price levels like $80 | | | | touched trice, and More than triple (T+) levels – |
| or $100, there can be more traders willing to buy or | | | | price touched many times. |