In the share market, many stock trading experts use technical analyses to understand the right trading opportunity. It uses various tools to make the correct prediction of the future and current price of the share. However, before you start using technical analysis, you need to know some basic fundamental concepts.
When you do this analysis, then you have to use two significant concepts: support and resistance. Here in this post, I will be explaining the same in detail. So that you can also understand how to predict the prices of the shares in the share market using technical analysis
A Brief Intro of Support and Resistance Level
These two are essential terminologies of the share market and are most commonly used in technical analysis. Support and resistance both move in the opposite direction when the stock hits the predetermined price. To understand support and resistance, we need to learn the stock support level and resistance level first.
What is The Support Level?
Support level represents that at this post, the prices of the stocks do not fall anymore. And from this point, the stock price is more likely to go upward and bounce again. With this level, the seller understands that the buyers will demand the particular stocks they are holding.
What is The Resistance Level?
The resistance level is also a part of technical analyses and is opposite to the support level. This point represents that the prices of the stocks will not go higher. It is the ceiling point at which the price of the stock stays maximum. And when more sellers come ahead to sell their shares, this price level is more likely to come down.
Now that you have understood the support and resistance level, we can move forward to understand the support and resistance of stock.
What is Support for Stocks?
The support price is the stock price on which the buyer of that stock is willing to purchase that stock. However, sellers for the same stocks may be looking to prevent this opportunity and wait for others. In short, it is the price level at which the buyers are high in number and sellers are comparatively less. With the help of the support level charge, the sellers can understand at which price point there are many buyers. The main reason is that when the stock price decreases, the number of potential buyers of the stock increases.
What is Resistance On Stocks?
The resistance level price chart represents the stock price at which more sellers are willing to sell their stocks. However, they have less number of interested buyers compared to other price points. This price point helps sellers understand that the stock price now will not increase above this point. Hence they look to sell their holdings at the resistance price level to maximize their earnings. Therefore, many traders consider resistance as the indicator to sell the holdings in the current market.
So, support and resistance are both opposite and valuable concepts in the technical trading calculation.
What is The Breakout Level in The Stock Market?
The support and resistance level in the stock market shows the movement of the stock. And it is entirely possible, the price of the stock can break in between. When this break takes place, then a new support and resistance price gets created. Once the stock price starts falling from the support price, it keeps going down until it finds a new support price. And the same happens with the resistance price as well; the stock price keeps increasing until it finds a new resistance price.
How Much Should You Rely On Support and Resistance of Stock?
So, should a trader rely on the support and resistance level of the stock? These two concepts of technical analysis help you to understand the upward and downward movement of the stock. However, you should not rely only on these two factors as there are many other aspects to consider. You can make a good deal if you use support and resistance prices and consider other factors.
How To Incorporate Technical Analysis in The Real World?
If you are a regular trader in the stock market, you may be thinking of using this way of trading. Yet, it is tough to predict the possible trend of the stock. However, if you are doing it right, it can work using technical analysis. So, suppose, you want to buy the XYZ share in the share market, in that case, you will buy those shares when it hits the support price level. If it is on the resistance level, you will prevent buying those shares as it will cost you more.
Similarly, if you hold some stocks in the share and are willing to earn some profit by selling those. You will look to sell those shares with maximum profit. So, here you can use technical analysis and understand at which level there is the highest level of the stock price. And when the price of stocks hits resistance level, you will feel open to sell those and earn a good profit.
Conclusion
The concept of support and resistance in the share market are essential terms. It becomes essential when you do trading using technical analysis. Hence in this article, you learned what support and resistance are. You also learned how you could use this method and succeed in the share market.
ProTips: You should remember that the stock price will not go beyond the support and resistance price level. Hence if you want to buy the shares, then look for support price, and to sell, look for resistance level. However, you can make a profit between the trends as well. All this depends upon your trading and technical analysis skills.
So, I hope now you have clarity about what is support and resistance in the share market. If you have any doubts or suggestions, then feel free to share them in a comment. You can also stay connected with the finance point to keep learning essential terms of the stock market.