Support and resistance are important levels on chart where the forces of Supply and demand match. these are areas on the chart where stock prices reverses . so we can use this opportunity to buy or sell stock.
It is a level that absorbs the selling pressure in stock. The support position is a price point on the map where the trader expects maximum buying coming into the stock . Whenever the price goes near to the support line ,there are chances of stock to get a pullback.
At the support level there is a belief that is the stocks prices won’t fall further, while at resistance position occurs when the belief is that the price won’t move higher.
These support and resistance are seen by traders as very important when determining the next move in the market?
Why do Supports Occurs?
The support levels occur in market due to 3 types of trader and combine result of them creates it at a particular level.
- At the support position traders try to buy stocks ,thinking this is the best level to buy.
- Second one is when stock prices consolidates near support ,people who have already with positions enter the market and buying happens.
- The third one is with short position , who already sold stock at higher level and siting with profits in hand. Near support level it tries to square off position and buying happens.
What if Support Fails?
It is not necessary that prices always reverse from support levels. In some cases if important level breaks then people with long positions exit the trade and selling happens. Hence the support level now will act as a resistance level.