Support & Resistance

Support & Resistance

Support & Resistance are undoubtedly two of the most highly discussed attributes in regard to traders utilizing technical analysis. These terms are used by traders to refer to price levels on charts that tend to act as barriers preventing the price of a stock from going further in that direction. This is what we use to base a trade's entries, stops and targets.

If a stock cannot push through a price higher where it's acting like a ceiling, this is called RESISTANCE.

If a stock cannot push through a price lower where it's acting like a floor,  this is called SUPPORT.

Let's take a look at the WYNN chart below.

You can see resistance at $105 and support at $87 as marked by the dotted lines.

BUT, support and resistance is not that simple. It can also be seen in the form of TREND LINES, where it's not 1 solidified number, but ever-changing.

Let's take a look at BABA in its early days of trading.

You can see by the trend lines formed, support & resistance weren't individual prices, but areas on a chart. This pattern is known as a "descending channel" which you will learn is a bullish chart pattern because of how it looks to break higher. You can see a constant level falling lower and lower in both support & resistance. Once it breaks out of this pattern it is looking to find new support & resistance. If we were looking to trade this, we would buy BABA when it was breaking $90 on high volume to the upside.

It is very important to be able to recognize support and resistance. This is how we figure out entry prices and exit prices (places to put our stop/targets to take profit.) Most traders are confident at these levels so the volume generally increases greater than usual, which causes the breakouts and breakdowns with follow through.

A general rule of thumb when approaching support/resistance is the more times a stock has bounced off support/resistance, the stronger the support/resistance becomes. Once it finally breaks, you can usually expect a big breakout/breakdown.

Do you have balls?

Your task is to post 1 chart in the Group Chat, mapping out the most significant points of support and resistance you can find.

Support and Resistance Video Lesson

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