Support and Resistance:
Another tool that investors use when they’re trading is support and resistance. Support is an invisible line that the price of the stock does not drop under. Resistance is another invisible line where the value of the stock does not pass, in other words the value of the stock hits a point and bounces back. This can be used in order to tell if a stock is having a hard time going up or down in value.
Support and resistance are caused by the supply and demand of people buying and selling. We mainly see support and resistance around round numbers. For example, a stock price might go up and hit a resistance point of $100 and then go down a bit, then go back up and test the resistance point but still not pass it. The reason for this might be because so many people sell their shares at that price of $100 because it is a big round number. Because of how many people are selling their shares at $100 or at another round number, we get the resistance points. It usually will not break the resistance point unless many people buy a lot of shares. That’s why round numbers can act as support and resistance points in many occasions.
In order to not fall into the trap of a resistance point it can be a good idea to sell right below the round numbers. For example, instead of selling at $100 we would sell a stock at $98. This way, we can sell before it hits the resistance point and drops down. Another example is that instead of selling at $10, we can sell at $8.
In order to take advantage of a support point, you will first have to figure out where the support line is. After finding that support line, you should watch it for a bit. If the stock price has a lot of trouble going below the support line, you will know that it is a strong support. Once you see all of this, it can be a good time to buy that stock right when it hits the line of support. The reason for this is that after hitting the resistance point multiple times, it is likely that it will bounce up in value.
In the picture, you can see a resistance line that where the stock isn’t going above. Every candlestick hits the line and bounces back down. Then, it approaches the line again. After doing this for a while, the stock will either shoot past the line or drop. The stock is only able to shoot past the resistance point if there are a lot of people buying the stock at the same time.
