The two most highly discussed components of technical analysis are the theory of support and resistance in stock market trading. Resistance and support are those levels where the supply and demand forces meet. In case you find the support and the resistance levels broken, you can safely assume that the demand and the supply for these securities have changed, and as a result, new levels of resistance and support will be formed.
Let's talk about these levels in detail in this article.
What is the Support Level of a Share?
Support in online trading means the level at which demand is found strong enough to help the stock from falling. When the prices of a share drop down and approach its support level, more traders are inclined towards buying the share, and the number of sellers for the share at that price reduces.
What is the Resistance Level of a Share?
Resistance in online trading means the level at which supply is found strong enough to help the stock from moving up. When the price of a share rises sharply and approaches its resistance level, there will be more sellers and fewer buyers for the share.
Psychology of Support and Resistance
Let us understand the psychology of support and resistance in market participants:
Let us assume that there are buyers who are buying a stock near its support level, which, say is INR 300. Now, the buyers have bought some shares at INR 300, which has now experienced a jump in its price and attained a level of INR 320. Now, buyers were happy at the rate of INR 300; they wanted to buy more of the stock only at INR 300, and not at INR 320. So, they start demanding that if the price falls back to INR 300, they will buy more. This way, the support level of a share keeps the price of a share near it.
Similarly, other traders who were earlier sure about the stock, but were thinking of buying the stock at INR 300, are regretting not buying it now, after the price rose to INR 320. They decide that if the price someday drops back to INR 300 again, they will not think twice about buying it. This way, there already exists a demand for the stock at the support level.
Similarly, the resistance level of a stock stops its price from exceeding it.
Conclusion
The support and resistance level of stocks thus keep their prices in a defined range. However, when the forces of demand and supply become extremely strong, they can push these levels to different numbers.
If you are an active trader on a stock market trading platform in India, you must have seen the resistance and support levels of different stocks change. You must always keep a track of such changes so that your trading calls remain upgraded with the dynamic nature of the online stock market.
COMTEX_413053951/2757/2022-08-25T10:36:39