The first and most important thing to learn about technical analysis is support and resistance lines. Support and resistance lines are lines drawn on a stock’s chart that shows you price points where the stock is likely to reverse. Knowing the fine details of support and resistance levels will greatly increase your chances for success in investing.
Support is the price level of a particular instrument in the stock, futures, or forex market where there are enough demand should price reach that level to keep the price from declining further.
The opposite from support is resistance which is the price level of a particular instrument where there is not enough demand should price reach that level for prices to continue to rise.
Chart Showing Support and Resistance in a Range Market
There are many ways to try and determine support and resistance however the most basic way is looking for areas on the chart where the price has touched multiple times (as in the above examples) without breaking through that level. The more times that price has touched a support or resistance without breaking through it the more “valid” that level is thought to be.
A very basic strategy that some traders use is to look for areas of support and resistance and sell as price approaches resistance anticipating a decrease in price and to buy as price approaches support anticipating an increase in price.
This is easiest to see in markets which are trading sideways as in the chart above. You can however also spot support and resistance in trends as the trend line and potential trend channel which are drawn to analyze the trend are acting as support and resistance in exactly the same way as they do above.
Chart Showing Support and Resistance in a Trending Market
support and resistance is the only method i’m using.
Some educators coined the term as “supply and demand”. They are basically the same thing.