Stocks Technical Analysis Basics Part 4

Support Lines and Resistance Lines

Support and Resistance at turning points

Prices move in waves. This undulating price picture with tops and bottoms occurs because, at a certain level, the price experiences support or resistance. At a bottom, the price is supported by sufficient buyers, and it bounces up again. At a top, the price is pushed down by large selling pressures.

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Figure 4.10: Basic support and resistance.

The price level of a share has everything to do with supply and demand (figure 4.10) forming the resistance lines and support lines. For a given increase in price, there are a number of buyers and sellers. A price increase will attract more sellers, but the number of buyers will decrease. A resistance line forms at a balance in sellers and buyers.

Figure 4.11: Resistance becomes support.

A broken resistance line automatically becomes a support line for future price levels (figure 4.11). Horizontal support lines and resistance lines are drawn through turning points in price or a price window. A confirmation is given if the price turns against this line.

A support or resistance line is broken if crossed with the closing price.

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