Support and Resistance Levels

a person using a laptop with a chart on screen

The battle between buyers (demand) and sellers (supply) is the key to price movements. In technical analysis, it creates what we see as support and resistance levels.

When the price of an instrument reaches a level where supply overtakes demand, a rise in price will hit the ceiling and begin to fall. A high in the price is left, and resistance is created.

In Simple words, supports are a price level that the stock will not fall below and resistance is a price level that the store can’t seem to rise above. The longer these levels hold, the more they stabilise for an eventual breakout or breakdown.

Breakouts form when the resistance is finally surpassed as buyers come in off the fence and short-sellers get buy to cover their shares.

A breakdown forms when the support level finally cracks as sellers panic to unload their positions and short-sellers try to add to their positions in often on a spike in volume.

Divergence patterns using indicators compared to prices use trend lines at the indicator peaks and bottoms to visualize indicator support or resistance.

When then the particular level is broken, it triggers a reaction in the price charts. These are temporary support and resistance since indicators often fluctuate, as time is a dynamic component.

The MACD is often used for divergence signals using the oscillator peaks and valleys compared to the price action

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