What are support and resistance?
Support levels are prices where buyers have shown or are likely to show strength. Resistance levels are prices where sellers are likely to be strong.
Support
Support levels essentially allow the market a 'floor', since they are areas where buyers tend to be strong. If the price falls to a strong support level, traders should expect buyers to step in and drive the price up, or at least keep it as a result of moving any lower.
Because support levels are prices where buyers are supposed to be strong, if the price falls below a support level, this is a signal for the market. It shows that there is more selling pressure (or not as much buying) pressure than previously thought, and it often leads more traders to exit long positions and take short positions.
Technical Analysis III: Support and Resistance
What are support and resistance?
Support levels are prices where buyers have shown or will show strength. Resistance levels are prices where sellers are likely to be strong.
Support
Support levels essentially give the market a 'floor', since they are areas where buyers tend to be strong. If the price falls to a strong guidance level, traders should expect buyers to step in and drive the price up, or at least keep it from moving any lower.
Because support levels are prices where buyers are supposed to be strong, if the price falls below an important support level, this is a signal for the market. It shows that there is more selling pressure (or less buying) pressure than previously thought, and it often leads more traders to exit long positions and take short positions.
When an expense breaks through a resistant level, it often triggers a large number of stop orders and makes for even greater buying power. Often the stronger the resistant level, greater the number of stops that are triggered and the larger the relocate above resistance.
Unfortunately, not every breakout is valid. Because they know that many traders place stops to sell just above resistant levels, some large institutional traders attempt to drive the price higher in the short term just to trigger a lot of these stops. Without any real force behind the move higher, the price can fall back to resistance. The same dangers of false breakouts apply to support levels as well.
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