Stock Support and Resistance
Disclaimer: This is NOT investment advice, just general help and opinions. Please check with a registered investment
advisor before making any investment decisions. This
document may contain errors. Chapman Advisory Group LLC employees are not investment advisors. Please review:
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Topics
- Support and Resistance price levels
- Support and Resistance types and strength
- Support and Resistance Tips
Support and Resistance price levels
- Stock resistance is a price level at or above the current price which provides resistance against any upward movement. ie. The stock may rally to resistance.(labeled as red lines on the 8 month chart)
- Stock support is a price level(or area) at or below the current price which provides support against any downward movement. ie. The stock may pullback to support.(labeled as blue lines on the 8 month chart)
- A neutral "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.
Support and Resistance types and strength
- Support and resistance types vary from the weakest Single (S), Double (D), Triple (T) to strongest more than Triple (T+).
(S,D,T,and T+ are the labels used on the 8 month stock chart)
- The type refers to the number times a stock has been rejected at resistance or bounced off support
areas over the past 8 months (Single=1 time, Double=2 times, Triple=3 times, Triple+= more than 3 times). The more times the stronger the resistance or support area.
- Triple resistance stock chart example:
- Support and resistance areas have a strength which varies from 1-10. This number represents the amount of
stock accumulation or distribution volume at each area as shown on the chart above.
- Weak support and resistance areas created with light distribution or accumulation volume have
a strength from 1-3.
Support and Resistance Tips
- Strong stock tops with high volume can create strong resistance (type single) with a strength of 8-10 (high distribution).
This will provide a strong resistance area if a stock revisits that top on a future rally.
Same is true for the creation of a stock bottom (type single support, strength 8-10, high accumulation) which is revisited on a future pullback.
- After a good stock rally (short term direction 7+) a resistance area will have a larger
impact.
Early in a stock rally there will be strength to overcome the local resistance area. The same effect occurs when a stock hits
support after a good sized pullback, the support's impact/strength will be greater.
- In very congested resistance/support areas, with one resistance or support after another may need
to be treated as one wide band. The stock may exhibit very choppy (up and down) closing price swings in this band.
- Over time stock support and resistance areas change and are dynamic. You have to be flexible and set up rules to deal
with the formation of new support and resistance areas.
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