What does Support and Resistance mean?

[deanoman]

Hey guys, for starters thanks for the replies to my last post. My next question is about support and resistance. I have been on yahoo finance in the tech. anayalis - detail data part and notice a few things that im curious!

Please correct me if im wrong, support means (in yahoo eyes) that the stock your looking at shouldnt go lower than the number shown and resistance means wont go higher!

thanks

 

[Sean K]

Yes.

Support is best where previous highs were, and resistance is strongest where previous lows were. There will still be S&R at all the tops and bottoms too though, especially all time lows and highs. You'll also get trend line S&R.

 

[tech/a]

Other way around Kennas.

Resistance at highs
Support at lows.

 

[Sean K]

Other way around Kennas.

Resistance at highs
Support at lows.

Yes, I was jumping ahead and talking about when support becomes resistance and vice verse. For some reason my perception has been that on the way up, resistance was strongest at previous lows, and on the way down, support was strongest at previous highs. Maybe it's just my perception.

More info here.

 

[explod]

IMO equally one of the most important subjects period. I picked it up from chapters on it in my early reading. Sureely there is a text dedicated to the subjetct alone now that someone can name.

Just one rough example, SAY over the last two years a heap got in at around 20 cents, it drifts down to 10, every time it tries to break 20 cents these old holders unload (the resistance). I usually do a quick scan count of the numbers on the volume off a monthly chart, divide by roughly half and when most of that number is exhausted a break obove 20 cents is worth a close look.

Resistance can go a long way back. The gold price has now a support base of around US$850 an ounce which goes back to 1980 which had a closing high at that level. Last year when it went back to this level there was some resistance (old holders or old memories?). Since breaking through, this level has become support and has held about 4 times so has some strength now.

There is a lot of market psychology behind the longer term picture on charting and deserves a great deal of study.

Just a rough 2cents

ps. Of couse these tendencies a just that, they are not absolute and need to be looked at against a myriad of other factors/indicators.

 

[tech/a]

IMO equally one of the most important subjects period. I picked it up from chapters on it in my early reading. Sureely there is a text dedicated to the subjetct alone now that someone can name.

Just one rough example, SAY over the last two years a heap got in at around 20 cents, it drifts down to 10, every time it tries to break 20 cents these old holders unload (the resistance). I usually do a quick scan count of the numbers on the volume off a monthly chart, divide by roughly half and when most of that number is exhausted a break obove 20 cents is worth a close look.

Resistance can go a long way back. The gold price has now a support base of around US$850 an ounce which goes back to 1980 which had a closing high at that level. Last year when it went back to this level there was some resistance (old holders or old memories?). Since breaking through, this level has become support and has held about 4 times so has some strength now.

There is a lot of market psychology behind the longer term picture on charting and deserves a great deal of study.

Just a rough 2cents

ps. Of couse these tendencies a just that, they are not absolute and need to be looked at against a myriad of other factors/indicators.

Explod.

Good trick.

I prefer to use resistance and support ZONES rather than a specific high or low.
Something I picked up from Steidlmeyer.
I find this helpful in all timeframes down to minutes.

 

[white_goodman]

Explod.

Good trick.

I prefer to use resistance and support ZONES rather than a specific high or low.
Something I picked up from Steidlmeyer.
I find this helpful in all timeframes down to minutes.

i sorta see what your getting at, im a total beginner aswell, so peaks and troughs tend to reach similar points in short-medium terms based upon where people buy in at?

 

[Sean K]

May I be so bold as to say that Explod was not actually saying exact points were support and resistance. Occasionally they are, but usually there is an area, or zone, where general support and resistance is found. I think he was just using numbers as a point of reference.

S&R obviously occurs over various time frames too. Short term traders may use short term S&R, whereas longer term traders, and investors, may use much longer term time frames, out to years. And, I think that S&R is more reliable over longer time frames.

All depends on your trading and investment methods and timeframes.

 

[explod]

May I be so bold as to say that Explod was not actually saying exact points were support and resistance. Occasionally they are, but usually there is an area, or zone, where general support and resistance is found. I think he was just using numbers as a point of reference.

S&R obviously occurs over various time frames. Short term traders may use short term S&R, whereas longer term traders, and investors, may use much longer term time frames, out to years.

All depends on your trading and investment methods and timeframes.

The example I gave is only one small facit of sup/res. It is a complex area for study but once mastered is a powerful guide.

Another is the round number, a lot will sell at $1, in fact many will take the profit at .99cents, and so on. etc. etc.

It is why I suggest one should seek a complete text on the subject

 

[white_goodman]

The example I gave is only one small facit of sup/res. It is a complex area for study but once mastered is a powerful guide.

Another is the round number, a lot will sell at $1, in fact many will take the profit at .99cents, and so on. etc. etc.

It is why I suggest one should seek a complete text on the subject

never thought of that, the psyche behind a nice round figure always seems more attractive

 

[Wysiwyg]

The example I gave is only one small facit of sup/res. It is a complex area for study but once mastered is a powerful guide.

Another is the round number, a lot will sell at $1, in fact many will take the profit at .99cents, and so on. etc. etc.

It is why I suggest one should seek a complete text on the subject

A good example of the round number is/was 13000 AND 14000 on the DJI.

 

[adamim1]

I suppose someone should say that support is where the price shouldn't go below - but doesn't mean it won't. Also, resistance can turn into support. I think MAK had a bit of resistance @ $2 a while ago and then turned into support.

 

[Santob]

Just one rough example, SAY over the last two years a heap got in at around 20 cents, it drifts down to 10, every time it tries to break 20 cents these old holders unload (the resistance). I usually do a quick scan count of the numbers on the volume off a monthly chart, divide by roughly half and when most of that number is exhausted a break obove 20 cents is worth a close look.

Thanks for this one paragraph. I had never really thought of resistance and support in those terms before - but it makes a lot of sense now.

So to get this right, you consider what the volumes that were bought at previous resistance levels, then make the assumption that these volumes will be sold at the same level? therefore if you can determine when this volume of supply (sell) is extinguished, then the resistance will be broken?

 

[white_goodman]

Thanks for this one paragraph. I had never really thought of resistance and support in those terms before - but it makes a lot of sense now.

So to get this right, you consider what the volumes that were bought at previous resistance levels, then make the assumption that these volumes will be sold at the same level? therefore if you can determine when this volume of supply (sell) is extinguished, then the resistance will be broken?

does that mean people are buying and selling at break even??? can someone put this in really stupid terms for me..... also does a price stagnation mean its meeting resistance at the top of a peak?

 

[Santob]

does that mean people are buying and selling at break even???

Thats what I read from it. And it makes sense, that a certain number of buyers will buy at a peak, watch it drop then sell as soon as it returns to that amount to break even. But what adds complexity to this scenario is volumes.

can someone put this in really stupid terms for me..... also does a price stagnation mean its meeting resistance at the top of a peak?

Or support at the bottom. Stagnation can also means it moves sideways bouncing between a high and low for an extended period also. In fact most literature I've read says this is how shares fluctuate for 70% of the time.

 

[explod]

Thanks for this one paragraph. I had never really thought of resistance and support in those terms before - but it makes a lot of sense now.

So to get this right, you consider what the volumes that were bought at previous resistance levels, then make the assumption that these volumes will be sold at the same level? therefore if you can determine when this volume of supply (sell) is extinguished, then the resistance will be broken?

Some of the volume, there is no precise rule of thumb, but that is the basic idea.

I remember a seminar I attended, which was conducted by Day Trader, Darryl Morley some years ago (trader for over 40 years) where he showed charts of stocks going back 40 years where there was inflation adjusted resistance clearly evident. The memories/experience of traders within a stock need (among many other things) to be considered.

It is from such basics that we enter the almost infinate possibilities of technical analysis.

And my examples on Sup/res are only a small sample of what you need to consider.

 

[deanoman]

Thanks for everyones replies, my next question on the matter is how often doe they change?



I use yahoo finance if that helps!

 

[alwaysLearning]

Thats what I read from it. And it makes sense, that a certain number of buyers will buy at a peak, watch it drop then sell as soon as it returns to that amount to break even. But what adds complexity to this scenario is volumes.



Or support at the bottom. Stagnation can also means it moves sideways bouncing between a high and low for an extended period also. In fact most literature I've read says this is how shares fluctuate for 70% of the time.

from the volume figure, how do you know what percentage of that volume is buyers vs sellers?

ps--if anyone knows of any books that goes into huge detail about volume patterns, can you let us know the title and author?

I'm reading and learning heaps but still a newbie.

 

[tech/a]

from the volume figure, how do you know what percentage of that volume is buyers vs sellers?

ps--if anyone knows of any books that goes into huge detail about volume patterns, can you let us know the title and author?

I'm reading and learning heaps but still a newbie.

Master The markets Tom Williams

The best on the topic.
Available on E book.

http://www.tradethetruth.com/downloads.html

Dont under estimate the Ebook.

 

[professor_frink]

Master The markets Tom Williams

The best on the topic.
Available on E book.

http://www.tradethetruth.com/downloads.html

Dont under estimate the Ebook.

nice work tech I don't have that one yet