Support and Resistance are the most basic technical indicators for analyzing a stock. Support is the level wherein the price has difficulty in falling. It is also the level where the investors and traders come in. Resistance, on the other hand, is the level wherein the overwhelming supply delays price upward movement. It is also the level where investors/traders sell.
Common Tools Used to Identify Support and Resistance
- Trend lines – a line drawn over pivot highs or under pivot lows to show the prevailing direction of price. Trend lines are a visual representation of support and resistance in any time frame.
- Moving Averages – is an arithmetic moving average calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods.
- Other Indicators – many other indicators have been developed to identify barriers to future price action. These indicators seem complicated at first and it often takes practice and experience to use them effectively. One example is Fibonacci Retracement. This indicator calculates the various levels of support and resistance which is more complicated lesson.
These are just the basic and common tools being used in identifying the price support and resistance. As you go along with technical analysis, you can also learn the other indicators so that you can be a successful investor or trader.