Support and Resistance



SUPPORT is that area where buying interest exceeds selling interest, and therefore a previous decline gets halted at this area and turns back up again. It is marked by drawing a horizontal line connecting two or more bottoms.


RESISTANCE is that area where selling pressure exceeds buying interest. It is an area where previous rallies get halted and turn down again. It is marked by drawing a horizontal line connecting two or more tops.


Support and Resistance are not absolute points.They are areas.
When Support breaks to the downside,we call that a Down Side Breakout or Breakdown.When Resistance breaks to the upside,we call that a Breakout.
When we get a breakdown below support,that area of support now becomes an area of resistance.
Have a look at the JNPR charts below.That area of support broke down and that same area is now acting as Resistance.
A breakout above Resistance,and that same area of resistance now becomes a new Support.
These are important areas for every trader,either as an entry point or an area to take profits.


See this CISCO Chart also


Trendlines as Support and Resistance

The Uptrendline acts as Support each time prices decline and come towards it. So too the downtrendlines act as resistance as prices rally to the trendlines and fall from it. Example in the image below of DELL. Prices hit the downtrendline and resume its decline.Therefore the dntrendline acts as Resistance.


And as was discussed regarding the breakout over resistance and breakdown below support,the same applies here. We have an uptrendline,we have prices taking support at this trendline. And as the trendline breaks,we say that the uptrend is in question.

A break in an Uptrendline is not a Downtrend………it merely tells us that this uptrend that we have been trading and making profits from is now in question.
So too with the Downtrendline. A breakout above the downtrendline does not mean that the stock is now in an uptrend,it merely means that the downtrend is now in question.

To assess uptrends and downtrends,we go back to pivot highs and pivot lows.