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Stock Resistance and Support
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- Resistance and Support price levels
- Resistance and Support types and strength
- Resistance and Support Tips
Resistance and Support price levels
- Resistance is a price level at or above the current stock price which provides resistance against any upward movement of the stock. ie. The stock may rally to resistance.(labeled as red lines on the 8 month chart)
- Support is a price level(or area) at or below the current stock price which provides support against any downward movement of the stock. ie. The stock may pullback to support.(labeled as blue lines on the 8 month chart)
- A "support or resistance" price level provides resistance from upward movement and support from downward movement. ie. The stock is stuck at this price level.(labeled as a grey line on the 8 month chart)
- Resistance and support levels are shown as price areas having a width (+ and -) in stock points.
Resistance and Support types and strength
- Support and resistance types vary from Single (S), Double (D), Triple (T) and more than Triple (T+). (S,D,T,and T+ are the labels used on the 8 month chart)
- The type refers to the number times a stock has visited that resistance or support
area over the past 8 months (Single=1 time, Double=2 times, Triple=3 times, Triple+= more than 3 times). The more times a stock has visited
a particular price area in the past the stronger the resistance or support level.
- Triple resistance:
- Triple resistance:
- Support and resistance levels have a strength which varies from 1-10. This number represents the amount of accumulation or distribution volume at each area used to create that support or resistance.
- Weaker resistance and support levels created with light distribution or accumulation volume have a strength from 1-3.
Resistance and Support Tips- Strong tops with high volume can create strong resistance (type single) with a strength of 8-10 (high distribution). This will provide strong resistance level if a stock revisits that top on a future rally. Same is true for the creation of a bottom (type single support, strength 8-10, high accumulation) which is revisited on a future pullback.
- After a good rally (short term direction 7+) a resistance area will have a larger impact than if the stock hit resistance early in it's rally. Early in a rally a stock will have more strength to overcome the resistance area. The same effect occurs when a stock hits support after a good pullback, the support's impact/strength will be greater.
- Very congested resistance/support areas, with one resistance or support after another may need to be treated as one wide resistance/support band. The stock may exhibit very choppy (up and down) closing price swings in this band.
- Over time resistance and support levels change and are dynamic. You have to be flexible and set up rules to deal with the formation of new resistance and support levels.
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