Table of Contents
Stock Technical Analysis -Why The Support and Resistance Important?
Identifying the support and resistance points is the best technique to determine the goal price. Support and resistance (S&R) are price areas on a chart that are likely to attract the most buying or selling activity. The support price is the price at which more buyers than sellers are expected. Similarly, the resistance price is the point at which more sellers than buyers are expected. Traders can utilise S&R to discover trade entry points on their own as well. ? The Opposition Resistance, as the name implies, is something that prevents the price from growing any higher. The resistance level is a price point on the chart when traders expect the maximum supply of a stock or index to be sold.
The level of resistance is always higher than the current market price. [br] It’s very likely that the price will rise to the resistance level, consolidate, absorb all supply, and then fall. In a rising market, one of the most important technical analysis tools for market participants is resistance. Resistance is frequently used as a sell signal. [br] The chart of Ambuja Cements Limited is shown below. The resistance level for Ambuja Cements is marked by the horizontal line that coincides with Rs.215 on the chart. It’s very likely that the price will rise to the resistance level, consolidate, absorb all supply, and then fall.
In a rising market, one of the most important technical analysis tools for market participants is resistance. Resistance is frequently used as a sell signal. I purposefully compressed the chart to include more data points, which I will explain in a moment. But first, while looking at the following chart, there are two things you should keep in mind: A horizontal line indicates that the resistance level is greater than the current market price. The current candle is at 206.75, while the resistance level is at 215. Let’s pretend Ambuja cement is trading at Rs.206 and has formed a bullish marubuzo with a bottom of 202. We understand that this is a signal to start a long trade.
Entering Trade with targets and Stop loss using S&R:
We also know that the trade’s stoploss is set at 202. With our newfound resistance knowledge, we can now select 215 as a potential target for this trade! You might be wondering why 215? The reasons are straightforward: -The resistance level of 215 indicates that there is a chance of excess supply.
Excess supply puts selling pressure on the market. Prices tend to fall as a result of selling pressure. As a result, when a trader is long, he can use resistance points to define targets and exit points for the trade for the reasons described above. In addition, now that the resistance has been identified, the long trade may be completely structured as follows: Entry 206, Stoploss 202, and Target 215. The logical next question is, “How do you do it?”