Using Support and Resistance Levels
This is an example of support switching roles with resistance, and vice versa:
If a stock price is moving between support and resistance levels, then a basic investment strategy commonly used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover the short at support as per the following example:
When judging entry and exit investment timing using support or resistance levels it is important to choose a chart based on a price interval period that aligns with your trading strategy timeframe. Short term traders tend to use charts based on interval periods, such as 1 minute (i.e. the price of the security is plotted on the chart every 1 minute), with longer term traders using price charts based on hourly, daily, weekly or monthly interval periods. Typically traders use shorter term interval charts when making a final decisions on when to invest, such as the following example based on 1 week of historical data with price plotted every 15 minutes. In this example the early signs that the stock was coming out of a downtrend was when it started to form support at $30.48 and then started to form higher highs and higher lows signalling a change from negative to positive trending.
Read more about this topic: Support And Resistance
Famous quotes containing the words support, resistance and/or levels:
“He uses statistics as a drunken man uses lamp-posts—for support rather than illumination.”
—Andrew Lang (1844–1912)
“Hence to fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy’s resistance without fighting.”
—Sun Tzu (6–5th century B.C.)
“The country is fed up with children and their problems. For the first time in history, the differences in outlook between people raising children and those who are not are beginning to assume some political significance. This difference is already a part of the conflicts in local school politics. It may spread to other levels of government. Society has less time for the concerns of those who raise the young or try to teach them.”
—Joseph Featherstone (20th century)