Support and Resistance in Stock Market

Often it the market we come to a word called support and resistance. This article explains the exact meaning and how to estimate it.

Support is the point where buying power faces difficulty in the in the current downtrend and resistance is when the selling power faces difficulty in the current uptrend. In easier term

Support is the price point where new lows cease and prices begin to once again rise. Prices will approach the line of support from above. And Resistance is the price point where new highs cease and prices should revert and begin to fall. Prices will approach the line of resistance from below.

Factors Responsible for Support and Resistance of a stock

Market psychology is the most important factor for support and resistance based on the P/E and EPS the valuation of a share is calculated and any ups and down in them depends upon.

But when market runs the traders remember where prices went up so they purchase at support, and they remember when prices declined so they sell at resistance. Their emotional attachment to prices creates these levels of support and resistance. Fear and greed causes them to buy and sell at these points.

How to Derive support and Resistance of stocks

If we draw an imaginary chart of the movement of a stock the area of maximum congestion while going up can be assumed as resistance and the area of maximum congestion while falling downward can be assumed support.

For example if a stock ranges between 1000-1200 and during its movement we have seen that maximum time it ran at 1020 and moved up and maximum time when it went to 1240 if fell. So the support may be derived at 1020 and resistance at 1240.

Advice to Investors

In the current volatile market it is risky to derive any conclusive support or resistance so one should be careful while watching the movement of a stock.

HAPPY INVESTING