Who Moves My Market? - Part 4

http://createwealth8888.blogspot.com/2009/11/who-moves-my-market-part-3.html

Support and Resistance


I like the simplicity of support and resistance. It can work because it is based on simple crowd psychology; but, sophisticated traders don’t like to admit it that it can work. Many Gurus have developed so many technical indicators, and every Guru claims their indicators work best. Who should we believe?

If you could predict where the market is heading, you would be a millionaire many times. Unfortunately, no one has developed an indicator that will predict the future. Many indicators have been created that will give you a probable direction of the market. But, the concept of support and resistance have not been claimed to be developed by any Gurus and it can also be predictive and even allow you to queue to buy or sell your stocks well ahead of any other indicators.


Support is a price level where the market has difficulty dipping below it because the demand is sufficiently high at that level. Support levels are always on or below the current price. In other words, the support line is where the price stops falling. But, support can be broken and there can be few more supports when the stock price starts crashing down. It will only stop due to lack of sellers or more willing buyers step in.


Resistance is the opposite of support. It is a price level where the market has difficulty surpassing that price level because the selling forces are strong at that price. Resistance levels are always on or above the current price. Same as support, resistance can be broken and there can be more than one resistance for you to take partial or full profit.

It is surprisingly simple, and can be effective way to trade. Buy near the support lines, and sell near the resistance lines. The only problem is which support or resistance line as there can be more than one? Train hard to see one. Cheers!