A ball hits the floor and bounces. It drops after it hits the ceiling. Support and resistance are like a floor and a ceiling, with prices sandwiched between them.
Understanding support and resistance is essential for understanding price trends and chart patterns. Rating their strength helps you decide whether the trend is likely to continue or to reverse.
Support is a price level where buying is strong enough to interrupt or reverse a downtrend. When a downtrend hits support, it bounces like a diver who hits the bottom and pushes away from it. Support is represented on a chart by a horizontal or near-horizontal line connecting several bottoms.
Resistance is a price level where selling is strong enough to interrupt or reverse an uptrend. When an uptrend hits resistance, it stops or tumbles down like a man who hits his head on a branch while climbing a tree. Resistance is represented on a chart by a horizontal or near-horizontal line connecting several tops.
It is better to draw support and resistance lines across the edges of congestion areas instead of extreme prices. The edges show where masses o traders have changed their minds, while the extreme points reflect only panic among the weakest traders. Minor support or resistance causes trends to pause, while major support or resistance causes them to reverse. Traders buy at support and sell at resistance, making their effectiveness a self-fulfilling prophecy.
Understanding support and resistance is essential for understanding price trends and chart patterns. Rating their strength helps you decide whether the trend is likely to continue or to reverse.
Support is a price level where buying is strong enough to interrupt or reverse a downtrend. When a downtrend hits support, it bounces like a diver who hits the bottom and pushes away from it. Support is represented on a chart by a horizontal or near-horizontal line connecting several bottoms.
Resistance is a price level where selling is strong enough to interrupt or reverse an uptrend. When an uptrend hits resistance, it stops or tumbles down like a man who hits his head on a branch while climbing a tree. Resistance is represented on a chart by a horizontal or near-horizontal line connecting several tops.
It is better to draw support and resistance lines across the edges of congestion areas instead of extreme prices. The edges show where masses o traders have changed their minds, while the extreme points reflect only panic among the weakest traders. Minor support or resistance causes trends to pause, while major support or resistance causes them to reverse. Traders buy at support and sell at resistance, making their effectiveness a self-fulfilling prophecy.
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