Minggu, 20 Desember 2009

Support and Resistance

Support and Resistance are like a floor and ceiling while the price is located between them. The main objective is to help us knowing price trends, chart patterns and determining whether the trend is likely to continue or reverse. Support and Resistance exist because traders have memories. They tend to repeat actions took place in the past.

Support is a price level where buyer's action is strong enough to interfere or reverse a downtrend. (Buyers overcome sellers) It can be said, when a downtrend hits support zone, it bounces and makes a pause or reversal depends on support's strength. Support can be drawn by a horizontal (or near horizontal) line connecting a few price bottoms. Support also helps traders to decide when to buy.

Resistance is a price level where seller's action is strong enough to interfere or reverse an uptrend. (Sellers overcome buyers) It can be said, when an uptrend hits resistance zone, it will go down and makes a pause or reversal depends on resistance's strength. Resistance can be drawn by a horizontal (or near horzontal) line connecting a few price tops. Resistance also helps traders to decide when to sell.

Minor support or resistance causes trends to pause, while major support or resistance causes them to reverse