Support and Resistance plays a vital role in trading. It may be day trading or positional trading, as we are mainly dealt with intraday trading we can see how support and resistance helps greatly to know the market levels from time to time. There is no need to check the support and resistance by only technical analysts, even small trader can get daily ideas of support and resistance levels. Lets know in detail about this
What is Support and Resistance levels?
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Support level :
A Support level is nothing but the price of the script goes down and it supports or it acts as a ceiling to stop the downfall of an script. The support level can be viewed in graph at downfall and if it cuts the last support level it denotes the price of the script falls more. Usually analyst will denote as S1, S2, S3 from the stop-loss line in the graph. Traders can treat this as buying point and can expect for a bounce back.
Resistance level :
A Resistance level is nothing but opposite to support level, where the script can be move upwards by increasing its price and it denotes that it can bounce at any time. If it cuts the resistance level it may go higher which depends on market condition. Usually analyst will denote as R1, R2, R3 from the stop-loss line in the graph. Traders can treat this as buying if it cuts R1, and if it touches R3 traders can treat for short selling.
How to find Support and Resistance?
There is a common saying that buy at support and sell at resistance. Support levels are usually below the current price, but it is not uncommon for a stock to trade at or near support. Technical analysis is not an exact science and it is sometimes difficult to set exact support levels. In addition, price movements can be volatile and dip below support briefly. Sometimes it does not seem logical to consider a support level broken if the price closes 1/8 below the established support level. For this reason, some traders and investors establish support zones.
Resistance levels are usually above the current price, but it is not uncommon for a stock to trade at or near resistance. In addition, price movements can be volatile and rise above resistance briefly. Sometimes it does not seem logical to consider a resistance level broken if the price closes 1/8 above the established resistance level. For this reason, some traders and investors establish resistance zones.
Day trading strategy with support and resistance
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Trading range can play an important role in determining support and resistance as turning points or as continuation patterns. A trading range is a period of time when prices move within a relatively tight range. This signals that the forces of supply and demand are evenly balanced. When the price breaks out of the trading range, above or below, it signals that a winner has emerged. A break above is a victory for the bulls (demand) and a break below is a victory for the bears (supply). Day trading strategies which it includes several tools to check like Trend lines, Moving average. With this trader can find basically on how the stock can be performed for the day.
What is Swing trading ?
A style of trading that attempts to gains in a stock within one to four days. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders aren’t interested in the fundamental or natural value of stocks, but rather in their price trends and patterns.
Swing trading using Support and Resistance
So, how does this apply to swing trading? You are looking for stocks to pull back to a prior resistance area. Then, you look for signs that the stock is going to reverse. Here is an example below. The highlighted area in green is where you would buy the stock.
As above given we can see the Support and Resistance how they are helpful in day trading and how one can see profits by using these simple technical parameters.
Source : Stockcharts.com