Support and resistance in equity charts


Support and resistance in equity charts are used to describe the overall trend of a stock or index. When a security is trading at a certain level, the price is said to be either at a “level of support” or at a “level of resistance”. Support and resistance levels are determined when the recent past trading activity has shown that the price tends to stop or reverse around those levels.

Support is the level at which a security has difficulty falling below. When a security is trading near a level of support, it indicates that the stock is considered "undervalued". Buyers may enter the market in anticipation of a rise in the stock price, and sellers may be reluctant to move the stock lower. Support levels can provide traders with an opportunity to buy a security when it is trading at an attractive price. 

Resistance is the level at which a stock has difficulty going above. When a security is trading near a resistance level, it indicates that the stock is considered “overvalued”. Sellers may enter the market in anticipation of a drop in the price, and buyers may be unwilling to push the price higher. Resistance levels can also provide an opportunity to short a stock when it has been trading too high. 

In order to properly identify support and resistance levels in an equity chart, it is important to be able to spot certain price patterns. Some common patterns include a price range trend, a breakout pattern or a consolidation pattern. These patterns can often be used to identify where support or resistance levels may be.

Identifying support and resistance levels in equity charts can be a powerful tool for traders. By utilizing these levels, traders can get an idea of how a security is likely to behave in the near future, helping to increase the likelihood of profitable trades. Furthermore, knowing the levels of support and resistance can also be useful in devising trading strategies such as stop-loss or take-profit orders.

Comments

Post a Comment

Popular posts from this blog

Federal Fund Rate - All about it and more

Image
The Federal Funds rate is the rate banks charge each other for overnight loans of reserves. Those reserves are held by banks at the Federal Reserve, and the rate is set by the Federal Reserve Open Market Committee (FOMC). While the Fed Funds rate is the main instrument for implementing monetary policy , it’s important to note that the federal funds rate isn’t the same as the discount rate. The discount rate is the rate the Fed charges banks for short-term loans, whereas the Federal Funds rate is a rate banks charge each other for reserves. The Federal Funds rate has an important role in setting monetary policy. The Federal Reserve sets a target for the Federal Funds rate, and other interest rates in the economy, such as mortgage rates and credit card rates, generally follow. The Fed Funds rate also influences long-term interest rates, such as 10-year Treasury notes. When the Fed lowers the Federal Funds rate, it usually leads to lower long-term rates, which ...
Read more

Trading and Investing

Image
Trading and investing are often confused for each other, but they are two very different strategies. Trading involves buying and selling securities or other financial instruments in the short-term to make a quick profit. Investing, on the other hand, is a longer-term strategy and involves buying and holding assets such as stocks, bonds, and real estate in order to achieve long-term capital appreciation.  When it comes to risk and reward, trading carries more risk . The nature of trading is such that you are constantly buying and selling, which means the profits you make can quickly be reversed. Moreover, you must have a deep understanding of the markets and superb timing to make consistent profits from trading.  In contrast, investing is a less risky strategy because you are holding the asset for the long-term. While it is possible to lose money in the short term, investments are more likely to increase enough in value over a period of time to yield long-term gains. You do no...
Read more

10 most popular indicators for technical analysis of charts

Image
Technical analysis of charts is the systematic study of price and volume activity in order to identify market trends and make investment decisions. Technical analysis can be used to predict future price movements and can be used to identify support and resistance levels. The following are 10 of the most popular indicators used in technical analysis of charts. 1) Moving averages Moving averages are a popular indicator used in technical analysis to identify trends and to predict future price movements. A moving average is simply a simple calculation of the average price of a security or an asset over a certain period of time. The most common moving average used in technical analysis is the 20-day moving average. 2) Bollinger Bands Bollinger Bands are a technical analysis tool used to identify potential market volatility. Bollinger Bands are created by plotting the range of a security's closing prices over a given period of time. The range of the security is split in two, with the lo...
Read more