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SUPPORT/RESISTANCE
Support and resistance levels have the major impact on deciding which way a trend is going.
Support levels are an area where traders find that it is difficult for the market to penetrate through with a lower price.
In other words, buying interest is strong enough to overcome selling interest.
Example on a chart:
Resistance is the opposite of support, and represents a price level where selling interest overcomes buying interest.
Example on a chart:
You can find the support and resistance levels using Pivot Point or Fibonacci theory.
You can also determine support and resistance areas by looking at the price behavior and drawing proper trendlines. We will cover trendlines in the
next chapter.
The longer the prices bounce off the support and resistance levels, the more significant the trend becomes.
The importance of support and resistance levels goes beyond their original functions. If these levels are convincingly
penetrated, they tend to turn into just the opposite. A firm support level, once it is penetrated on heavy volume, will
likely turn into a strong resistance level. Conversely, a strong resistance turns into a firm support after being penetrated.
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