Understanding the Stock Market – Support and Resistance

There are many tools that an investor or trader can use to assist in determining price direction. A trader should not rule out subscribing to newsletters that offer trading support and actual stock picks to supplement your own analysis of markets and market direction.One of the essential tools in analyzing market price direction is identifying support and resistance zones. These are areas where prices tend to consolidate and reverse. Support provides support to prices that are declining and resistance impedes prices that are attempting to advance.Now it is possible, of course, that prices decline or advance through these zones bringing into play another zone of support or resistance. Generally, if prices are falling into a support area and that area holds and they begin to rise again you should be a buyer. If the area doesn’t hold then prices could drop to the next area of support. A trader could go short at that point, but would not necessarily do so. An analysis of the overall market and a longer term price picture should be considered before shorting this area.Similarly, at resistance points, if the zone holds and rejects prices a short position could be initiated. If the resistance doesn’t hold prices, look at the next resistance point.Determining support and resistance points takes some practice and is somewhat subjective because there are points that can be considered weak support or resistance and strong support or resistance.There are many books and seminars that teach methods for determining support and resistance zones, but the simplist way is to look at price charts. Which charts to look at depends on if you are a long term or short term trader. Longer term traders may look at daily and weekly charts and shorter term traders might look at 5, 10 or 30 minute charts.Whichever charts you decide to use look back at previous areas of support and resistance. That is, if prices were advancing, at what price did they stop advancing and begin to decline. How many times did that price hold prices from advancing further. The more times it repelled price appreciation, the stronger and more significant the resistance point.Apply the same logic to support points. When prices are declining, at what price point did prices stop declining and begin to advance.By looking at historical charts you can determine many support and resistance zones that will assist you in your trading decisions.