Support and Resistance

[Richmm63]

I know this has probably been answered before, but!  For the life of me I can not figure out how you figure out the support and resistance.  Thanks for any help.

[Dzielak51]

Support: A price level at which there is sufficient demand for a stock to cause a halt in an downward trend and turn the trend up. Support levels indicate the price at which most investors feel that prices will move higher.

Resistance: Resistance is a price level at which there is a large enough supply of a stock available to cause a halt in an upward trend and turn the trend down. Resistance levels indicate the price at which most investors feel that prices will move lower.

[Richmm63]

okay, that makes sense, but when looking at a chart how do you know where the support and the resistance is.  I have seen the charts posted by others but that is where i get lost.
 thanks for the help...

[underwaterlogger]

you can see what  resistance is by looking at past highs and looking at past lows for support. These are the points where us staticians look for a stock to increase after a drop in price (support) or for a stock to decrease after a rise in price. (resistance) Hope this helps, it will be a start.

[Richmm63]

Past highs and past lows....I should have figured that out I guess.  Thanks alot for the help

[rb122756]

Rich,

Support and resistance are prices at which a stock has a history of either bouncing up or down.  Think of support as the floor of a room and resistance as the ceiling and the stock price as a rubber ball.  When the stock hits the floor it bounces upwards and when it hits the ceiling it bounces downwards.  Support and resistance are sometimes easier to see with a line chart.  A line chart is based on the closing price each day as opposed to candlesticks which show you the open, close, high, and low.  If you use a line chart you want to draw lines at the price where the line chart touches at least 3 times.  The more times the line chart touches a support or resistance line, the stronger the support or resistance is.  Sometimes the lines are horizontal, and sometimes they are at an angle if the stock is trending up or down.   I like to go back at least six month when plotting these out.

These lines are very important because they are something institutional traders and market makers are looking at.  A lot of times they will sell s lot of shares when a stock hits resistance and buy a lot of shares when a stock hits support.  These are the guys whose stock purchases really drive the price of the stock.  We are just spectators hoping ride the coat tails of their moves to make a profit.

Taking the room analogy a step further - think of rooms or stories in a multiple story building.   When the stock price breaks through the ceiling (resistance) of the current floor, it becomes the floor (support) of the next story above it.  When the stock price drops below the floor (support) of the current floor, it becomse the ceiling (resistance) the next story below it.

If you get a good charting package, take a few minutes every night plotting support and resistance based on these principles and you will get very good at it quickly.

RB.

[Richmm63]

Great explanation, thank you very much......

[Tommy86]

thanks rb 

[rb122756]

You're welcome.