SUPPORT AND RESISTANCE

THE PURPOSE OF THIS CHAPTER IS TO IDENTIFY SUPPORT AND RESISTANCE LEVELS AND UNDERSTAND THEIR SIGNIFICANCE

SUPPORT IS DEFINED AS BUYING POTENTIAL SUFFICIENT IN VOLUME TO HALT A DOWNTREND IN PRICES FOR AN APPRECIABLE PERIOD. RESISTANCE IS DEFINED AS SELLING POTENTIAL SUFFICIENT IN VOLUME TO SATISFY ALL BIDS AND THEREFORE TO STOP PRICES OF GOING HIGHER FOR AN APPRECIABLE PERIOD.

CONCENTRATION OF DEMAND CONCENTRATION OF SUPPLY

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A SUPPORT AREA IS ONE IN WHICH SELLERS BECOME LESS ENTHUSIASTIC AND WHERE BUYERS ARE MORE STRONGLY MOTIVATED

ONCE A SUPPORT HAS BEEN VIOLATED, IT REVERSES ITS ROLE TO RESISTANCE WHEN PRICES START TO RALLY AGAIN

A and B are first, support levels and then become resistance level

BREAKS ON SMALL VOLUME R

THE MORE OF A SECURITY’S VOLUME TRADED AT A PARTICULAR LEVEL, THE GREATER ITS SUPPORT AND RESISTANCE’S SIGNIFICANCE.

2. THE GREATER THE SPEED OF THE PRECEDING PRICE MOVEMENT, THE GREATER THE SIGNIFICANCE THE SUPPORT OR RESISTANCE ZONE IS LIKELY TO BE.

3.THE MORE POWERFUL THE MOVE PRECEDING THE SUPPORT OR RESISTANCE ZONE, THE LESS ITS POTENTIAL AS A BARRIER. DON’T MIX SPEEDY AND LENGTHY MOVE

4. THE MORE TIMES A ZONE HAS BEEN ABLE TO HALT OR REVERSE A PRICE TREND IN THE PAST, THE GREATER ITS SIGNIFICANCE.

5. THE LONGER TIME THAT HAS ELAPSED BETWEEN THE TIME A SUPPORT OR RESISTANCE ZONE WAS LAST CHALLENGED, THE LESS SIGNIFICANCE IT’S LIKELY TO HAVE