Support | Resistance | Technical Analyses | Strategies

Support And Resistance Trading

By Aryan on July 20th, 2010

Support And Resistance Trading

Trends are formed when fundamentals in the market change. Prices start to go up or down in a steady manner of course not in a straight line. Markets don’t like to move in straight lines.

As a trader, you should become familiar with the support and resistance levels. These two levels are widely used in almost all markets. Every day, the market will keep on moving between these two support and resistance levels until some breakout takes place and a new support and resistance level is established. What causes the market to move between the support and resistance?

Just like the grain auctions of centuries ago, today too, buyers and sellers have certain price levels that they have in their minds around which they are going to buy or sell. When the price action reaches the price where the crowd thinks that it is an attractively buy, buying starts and price stops falling and starts climbing again. Once again when it reaches a level where the crowd thinks that it is now over priced, selling starts and prices start to fall again. So this back and forth price action continues till the underlying fundamentals in the market change.

So, resistance is the level at which the market becomes overbought and support is the level at which the market is oversold. How do you find the market overbought and oversold? You can use the Relative Strength Index to know when the market is overbought and oversold. These overbought and oversold levels are just a reflection of the crowd mentality.

Support and resistance forms the basis of many successful trading strategies in almost all markets stocks, bonds, forex, futures, options, ETFs, commodities and others. Buy at the support and sell at the resistance is what many traders do. In Channel Trading as well, support and resistance are the levels where traders buy and sell.

Support and resistance is one of the most important concepts in trading that you need to Master. It is not a difficult concept but understanding this concept will help you understand the psychology of the crowd that rules the market .