Support and Resistance Flashcards
What are support and resistance levels used for
To identify price points on a chart where the probabilities favor a pause or reversal of a prevailing trend
When does support occur
Support occurs where a downtrend is expected to pause due to a concentration of demand or buying interest due to lower prices.
When does resistance occur
Resistance occurs where an uptrend is expected to pause temporarily, due to a concentration of supply or selling interest due to higher prices
How are support and resistance levels used on a 1 year chart
Look at the highest price point (resistance) and then the lowest (support), when price gets close to support, might not go much below this and could rise all the way to resistance point
Why might a stock price struggle to move past round number prices
Many inexperienced traders and companies set their sell prices at round numbers and it would take alot of purchases to absorb these sales
How can moving averages be used with support and resistance
when market is in an uptrend can form a support line
when market is in a down trend can form a resistance line
(not sure how reliable this is in practice)
What 4 things are used in a price chart to give a clue to the significance of the support/resistance levels
- number of touches
- preceding price move
- volume at certain price levels
- time
What can the number of touches a stock price makes on a support/resistance line tell you about those lines
The more touches, the stronger the support/resistance line
How can preceding price moves tell you the strength of a support/resistance line
Steep uptrend = stronger resistance line forming
steep downtrend = stronger support line forming
What can volume at certain price levels tell you about the strength about the support/resistance lines
Higher volume at one price point = stronger support/resistance
??? cant figure out why exactly
When a breakout occurs past support or resistance how can volume affect the likelihood of a trend forming in that direction
breakouts that happen on higher volume show more conviction and its more likely that a trend will form in that direction.
Why can high volume breakouts fall down to the breakout level before rising again?
short term traders will buy at the breakout and then sell quite early
