From : Shah Dilip at 09:50 PM - Apr 12, 2010(22 months ago)
Total Views:
Support and Resistance Level Day Trading Technique
The concepts of support and resistance are undoubtedly two of the most highly discussed attributes of technical analysis and they are often regarded as a subject that is complex by those who are just learning to trade.these terms are used by traders to refer to price levels on charts that tend to act as barriers from preventing the price of an asset from getting pushed in a certain direction. At first the explanation and idea behind identifying these levels seems easy, but as you'll find out, support and resistance can come in various forms and it is much more difficult to master than it first appears.
What is Support?
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.
After a support level is penetrated, it often becomes a resistance level; this is because investors want to limit their losses and will sell later, when prices approach the former level.
What is Resistance?
Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance.
After a resistance level is penetrated, it often becomes a support level; this is because buyers who didn't buy at that price before it went up are now willing to buy at that price.
The concept of SUPPORT AND RESISTANCE is essential to understanding and interpreting the markets. Just as a ball bounces when it hits the floor or drops after being thrown to the ceiling, support and resistance define natural boundaries for rising and falling prices. Support defines that level where buyers are strong enough to keep price from falling further. Resistance defines that level where sellers are too strong to allow price to rise further.
How can Support & Resistant Levels help you make profitable trading decisions?
Identification of key support and resistance levels is an essential ingredient to successful and profitable trading. Being aware of the support and resistant levels of stocks and indices can greatly enhance analysis and forecasting abilities.
If a security is approaching an important support level, it can serve as an alert to be extra vigilant in looking for signs of increased buying pressure and a potential reversal. If a security is approaching a resistance level, it can act as an alert to look for signs of increased selling pressure and potential reversal.
If a support or resistance level is broken, it signals that the relationship between supply and demand has changed. A resistance breakout signals that demand (bulls) has gained the upper hand and a support break signals that supply (bears) has won the battle.
The day trading recommendation which you receive from stock market technical experts perfectly helps you to do day trade without making such calculations and analysis. Various support and resistance levels of your recommended stocks are given to you in advance and your job is to simply observe the price action of your recommended stocks and take decision basing on the predetermined support and resistance levels.
To successfully use this technique
1. First you should purchase day trading recommendation with 2-3 clear support and resistance levels in highly liquid stocks, actively traded stocks and large cap stocks from stock market technical analysis. Some free tips can be taken from..... icicidirect.com , valuenotes.com
2. if the price of your recommended stock took support near support levels, or if the price is strongly moving in upward direction towards 2nd resistance levels after crossing 1st resistance level, you can consider buying that stock to exit at next resistance level after booking the profit.
IMPORTANT: - if the recommended stock is moving in between 1st and 2nd resistance level, you should consider the 1st resistance level as immediate support level, similarly if it is moving in between 2nd and 3rd resistance level, you should consider the 2nd resistance level as immediate support level. in the same way if you enter into stock at 3rd support level, you should consider the second support level as immediate resistance level or your target level and if you enter at 2nd support level, you should consider the 1st support level as your immediate resistance level or your target level.
3. you should compulsorily observe the price charts every time before taking buying decision. if the chart formation is positive as learned in previous thread, you can enter into that stock. if the chart formation is negative then you should stay away from the stock.
4. Do check via line chart the reversal formations at tops, downtrends etc.
In Reply to above Message (1 to 1 out of 1) -- Latest Replies are put on Top
Disclaimer: The messages and ideas posted on this website are user's own views. Mudraa.com does not own any responsiblity for the information provided by the users.Data delayed 15 to 20 minutes unless otherwise indicated.
