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Stock Charts: Learning About Support and Resistance

December 5th, 2012

Support and Resistance are the building blocks needed in order to read chart patterns properly and to trade effectively.

Support

  • A psychological level where people believe the demand is strong enough to hold the stock price up
  • This is similar to a price floor, but it isn't government controlled
  • A healthy support line hits multiple points at the same level

Resistance

  • It is the opposite of support
  • A psychological level where the sellers are putting the stock down
  • When a stock hits the resistance line, buyers no longer want it because the price is too high, and sellers step in
  • The more times a stock hits the resistance line, the stronger it is becoming

Support and Resistance are the Same

  • Support is actually resistance and vice versa
  • They both equal one another
  • i.e. once the stock breaks through the resistance level, the resistance line becomes the support line
  • Resistance lines continue to become support lines as the stock continues to go up
  • The same is true on the downward level; support lines become resistance lines as the stock goes down
  • The more trading that is done in a certain level, the stronger that level becomes

Additional Notes

  • Support and resistance do not have to be horizontal
  • They can be elevated at different angles and still be support and resistance lines
  • If the support or resistance is broken that means the perception of the stock has changed
  • When stocks tank, people are selling their shares and they want less of that stock
  • If stocks have a lot of resistance and break through the resistance line, there is a high demand for the stock (new product, positive news, etc)

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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