Following our moto to spread financial literacy that we will sharing small concepts with you on Technical, Derivatives Analysis. We are starting it from today!
The two most important terms in Technical Analysis, Chart Study are as follows :-
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. It is a level at which buyers tend to enter the stock. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support. If the price of a stock falls toward a support level, it is a test for the stock the support is either confirmed or eradicated.
E.g – Recently Nifty IT (Index of All IT Companies) has risen/couldn’t break the levels of 15250-15300, hence 15250 is a strong support for Nifty IT. If Nifty IT breaks 15250 then it will be a sign of worry for bulls as Nifty IT will go lower.
Resistance is that price level at which selling is thought to be strong enough to prevent the price from rising further. Resistance in technical analysis is a price level that a rising stock can’t seem to overcome. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance. Resistance levels are characteristically found at the upper levels of range bound markets.
E.g – Recently Nifty has fallen/couldn’t cross the levels of 11540-11550, hence 11550 is a strong resistance for Nifty. If Nifty breaks 11550 then it will be a sign of worry for bears as Nifty will go higher.
Support is broken – Breakdown (We go Short)!
Resistance is broken – Breakout (We go Long)!
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