Support and resistance can be used to manage trades. They often act as price barriers and many traders can use them to their advantage. Traders must know about support and resistance when studying stock charts. Traders can become professionals if they practice and will soon be able to pull up any stock in a matter of minutes. Here is a breakdown of Support and Resistance and how they work with Candlestick Charts.

Deficit Stock Chart

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What Exactly Does Support Mean?

The stock will often test a level of support in two ways: if the stock falls to this level, bounces off, and then starts to rise again and if the stock falls to this level, goes through that level and then finds a resting spot. The price level becomes more powerful and important the more times the stock falls and bounces.

What Exactly Does Resistance Mean?

Resistance is the opposite of support. This is when the stock is not able to rise, is struggling and peaks at the ceiling level. Resistance is always found above prices. The stock price will often bump up against it or go in the opposite direction. In some cases, the stock will break through and began to rise.

Causes of Resistance and Support

There are different scenarios that should be examined when considering the causes of support and resistance. A support level is created when the buying pressure rises above the selling pressure. In this event, the price movement comes to a halt. The sellers have reduced the stock price down, and those who are looking to buy cheap stocks buys it. If this happens, the price of the stock will rise again. Those who were not able to buy the stock at its discounted rate will have to wait for another opportunity to buy. If the stock falls down to the support level and the sellers have an advantage over the buyers, stock will tumble and break through the support line.

A resistance level is created when the pressure to sell a stock is higher than buyers looking to make a purchase. In return, the stock will rise to a certain point and the sellers will began to put the stock back on the market.

Other Tips and Techniques

Certain resistance and support levels are more essential to others. The level of importance is determined on a few things: how much stock has been traded near the level, the amount of times the level has been tested, whether the level is low or high, etc. Most resistance and support levels run horizontally. They usually do not appear on an angle. Stock traders will often find it helpful to draw a horizontal line on the stock chart to determine where the resistance and support levels are.