InvestorQ : What is the importance of Supports and Resistances in technical analysis?
Jignesh Gupta made post

What is the importance of Supports and Resistances in technical analysis?

Answer
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Maniish Lofar answered.
1 year ago


Support and resistance levels are important points in time where the forces of supply and demand meet. These support and resistance levels are seen by technical analysts as crucial when determining market psychology and supply and demand. When these support or resistance levels are broken, the supply and demand forces that created these levels are assumed to have moved, in which case new levels of support and resistance will likely be established.

Let us look at the Support level first. Support is the level at which demand is strong enough to stop the stock from falling any further. A typical sign of the support line is that each time the price reaches the support level it has difficulty penetrating that level and tends to bounce back in normal circumstances. The rationale is that as the price drops and approaches support, buyers (demand) become more inclined to buy and sellers (supply) become less willing to sell. That is how supports are created and consolidated over longer periods of time.

What exactly is a resistance line? Resistance is the level at which supply is strong enough to stop the stock from moving higher. A typical of the resistance line is that each time the price reaches the resistance level it has a hard time moving higher. The rationale is that as the price rises and approaches resistance, sellers (supply) become more inclined to sell and buyers (demand) become less willing to buy. Even resistances consolidate over time!