Finance: What are support levels and resistance levels?

What are support levels and resistance levels? In technical analysis, support levels are price levels where an asset’s price can drift down to and then historically buying has come in to establish a price floor that makes further price dropping difficult. Support is the opposite, where price increases hit a theoretical historical ceiling and selling develops to make further price rises difficult. Both support and resistance levels can be broken if excessive volume in either direction continues to increase, at which point, secondary and tertiary historical support and resistance levels would be watched next.

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Transcript

00:23

non union labour and nothing like it Okay so let's

00:26

look at a few stock charts here Well support level

00:28

cleverly named because here you can see support It's a

00:32

ziff As soon as the stock touches anywhere close to

00:35

this line well it bounces meaningful E up What does

00:38

that mean It means that investors have a price at

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which the stock is a no brainer bhai and they

00:44

all buy it right there So then what about a

00:46

resistance level Well kind of inverse here like check out

00:49

this little engine that could stock It's trying to break

00:52

north higher and higher It thinks it can It thinks

00:55

it can There's just too much resistance And it gets

00:58

sent back down to the man Yeah well then it

01:00

has to chug chug again thinking if can thinking can

01:03

think it can't And then resistance So yeah that's resistance

01:06

So this is where the collision between fundamental and tech

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analysis can emerge or at least drive into each other

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You might have a stock that has supported fifteen bucks

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and trades as high as twenty for a while But

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then it gets beaten back down with its resistance level

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touch that traders who control the pricing of a given

01:21

stock on any given day will manage its pricing within

01:24

that given range But over time the fundamental business or

01:27

earnings power or profitability of the company well it wins

01:31

out over its short term trading dynamics Fundamental investors might

01:35

be the ones doing the buying at fifteen box not

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technical chartist that is you might have a stock that

01:40

paisa in three percent dividend at twenty dollars a share

01:43

or sixty cents a year but fifteen dollars a share

01:46

Well then the dividends massive at four percent And with

01:49

the dollar in change in earnings it's a steady eddie

01:51

stock that investors will buy all day long at fifteen

01:54

dollars So in essence the fundamental investors in fact are

01:57

the ones providing quote technicals aboard unquote for the stock

02:01

at that level And eventually if that stock ends up

02:03

growing in producing same three dollars a share in earnings

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Well it won't be trading at anything close to fifteen

02:09

dollars or twenty dollars anymore It will have broken out

02:12

of the resistance level that was operating like gravity keeping

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it down you know like the man does so supporting

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resistance levels exist in a vacuum within trading days or

02:21

weeks and they come in a variety of flavors Other

02:24

kinds of support patterns happen as well Here's supporting a

02:26

characteristic line and it supports all kind of right there

02:30

and well here's support in a double bottom We cannot

02:33

lie You know there's a port right there in there

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and here you have support in a rectangle But well

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note that you also have resistance up here and the

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line looks like it's trying to break out of that

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rectangular pattern But it's getting resistance and coming back down

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And he also see support in other areas like ascending

02:49

tops And there's resistance that presses down new highs And

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you still have other patterns like well this congestion area

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which makes this doc look like a trading sardine where

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traders will buy it It's a support line and then

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sell it at the resistance line all day long and

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make nickels and dimes well The key notion and all

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of these supporting resistance style charts is that patterns work

03:09

until they don't So check out this very decisively resistant

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top in this triple top pattern It's like the line

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just can't break out of it Ah ever But if

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you check out the breakout pattern in this breakout chart

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yes there was resistance until the company produced a dollar

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eighty three and earnings when everyone thought it would only

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produce a dollar forty and then blame Oh the stock

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breaks out to a new high level at which point

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all bets are off and the pattern picking charters take

03:35

their losses from having been short the stock of the

03:38

top And then they go hunting for some new pattern

03:41

religion Sat words don't don't trust charts