Support and Resistance is the concept of technical analysis of stock market. In stock market if the demand for scrip increases then the price for that scrip will increase, and if the supply of that scrip increases then the price for that scrip will decrease.
What is support?
Support level is the level that protects prices from going down further. Support Level is the level where buyer becomes more active and started buying stocks. That’s why demand for that stock goes higher. So that price for that stock reaches to the support level. In short at the support level demand of the stocks becomes stronger and that will prevent the price from further decline.
What is resistance?
Resistance level is opposite of support level. Resistance level is the level that protects the prices from going higher. Resistance level is level where seller becomes more active and started selling stocks. That’s why supply for that stock goes higher. So that price for that stock reaches to the new resistance level. In short at the resistance level supply becomes stronger and that will prevent prices from further rising.
Generally we can find support level below the current price while resistance level is found above the current price of scrip. Some traders use trend line to find support or resistance level.
If the price goes below the support level then it will create a new resistance level, and if the price goes above the resistance level, it will create a new support level.
It is most difficult for technical analyst to find exact support and resistance level. It is even most important for technical analyst to find exact location of support and resistance level. If the scrip is approaching support level, than it is clear indication of increase in buying pressure. If the scrip is achieving resistance level, than it is clear indication of increase in selling pressure.
If the relation between supply and demand gets changed, then stock will break support or resistance level. If the demand gets higher than supply, resistance break out can happen, and if the supply goes higher than demand, support break out occurs.
