Basics of Resistance and Support

Basics of Resistance And Support

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Article details about what are Support and Resistance on a stock chart and how to easily identify the same.

Resistance and Support are price points on stock chart where direction of price trend in a stock is likely to be reversed.
Resistance is price point where uptrend is likely to face resistance and is likely to be reversed.
Support is price point where downtrend is likely to be facing support and is likely to be reversed, thus turning into uptrend.

In above chart for NSE:COALINDIA, as of 05-June-15, note following elements drawn - resistance line, support line, resistance points, support points
Subsequent resistance points or support points fall on line that connects previous resistance or support points.
If the price point that is past support or resistance, if there is higher volume at that point, then that adds to additional strongness to that support or resistance level. E.g. at Point A above, the circled portion shows higher volume, thus providing additional confirmation on strongness of support.

Support and Resistance are only indicative and there is no confirmation as such that trend reversal will happen across those points.
If the Support or Resistance is "broken" i.e. if price moves subsequently 'below' support and 'above' resistance points, then the original trend is supposed to get strength and is likely to continue till 'next' levels of support or resistance levels are encountered.
Thus in above chart, on last day, COALINDIA has broken the resistance level and thus trend may continue upwardly.

Please note that, as indicated in above chart, resistance and support line may not be perfect price line. It is considered to be an approximate zone of price, as indicated by a green rectangle in above figure. It shows such an approximate price zone for support price.

Previous charts shows mostly horizontal side ways movement rather than long term up or down trends. However, in a clearly longish trending charts, it is not difficult to draw the support and resistance lines, as shown in above Chart for NSE:INDUSIND bank. Chart displayed part is till 26-May-15. Green line is support line and red line is resistance line.

Summary Lines:

Support and resistance are two indications which are very easy to read on charts and should always be used to additionally support buying and selling decisions.