What’s up Traders, in this article, we’re going to be talking about Support and Resistance Levels in Forex Trading. Two of the most hotly debated aspects of technical analysis are definitely the ideas of trading level support and resistance.
These names are used by traders to describe price levels on charts that frequently serve as barriers, preventing the price of an asset from being pushed in a particular direction. They are part of the analysis of chart patterns.
The rationale and concept behind identifying these levels initially seem simple, but as you’ll discover, support and resistance can take many different forms, and the idea is trickier to understand than it first seems.
Technical analysts utilise support and resistance levels to pinpoint price areas on a chart where there is a good chance that the current trend will stall or reverse. Where a downturn is predicted to pause because of a concentration of demand, support is found.
Where supply is concentrated and a rise is anticipated to stall momentarily, resistance develops.
Market psychology is important because it helps traders and investors predict future market movement by helping them recall the past and respond to shifting circumstances.
On charts, trendlines and moving averages can be used to locate regions of support and resistance.
Definition of Support and Resistance
- Basic
- The Trendlines
- The round numbers
- The Moving Averages
- Additional Indicators
- Zones’ significance as measured
A price level known as support is one where a downturn is likely to pause because of a concentration of demand or purchasing activity.
Demand for the shares rises as the value of assets or securities declines, creating the support line.
In the meantime, when prices have grown, resistance zones appear as a result of selling interest.
When a price reaches a level of support or resistance, it will either bounce back away from the level or violate the price level and continue in its direction until it reaches the next level of support or resistance.
As a result, once a region or “zone” of support or resistance has been identified, those price levels can serve as potential entry or exit points.
Some trades are timed based on the assumption that support and resistance levels won’t be broken.
Traders can “bet” on the direction and can immediately ascertain if they are correct, regardless of whether the price is stopped by the support or resistance level or it breaks through.
The position can be closed with a slight loss if the price swings against it. But if the price shifts in the proper direction, the change might be significant.
Basic
The majority of seasoned traders can relate anecdotes about how specific price ranges frequently act as barriers to traders moving the price of an underlying asset in a particular direction.
Consider Jim as someone who held stock between the months of March and November with the expectation that the price of the shares would rise.
Let’s say Jim notes that the price has come extremely close to going beyond $39 multiple times over the course of several months but has been unable to do so.
The price level around $39 would be referred to as resistance in this instance by traders. The chart below illustrates how resistance levels are also thought of as ceilings since they are the points when a rally runs out of steam.
The other side of the coin is support levels. Support on a chart refers to prices that frequently serve as a floor by preventing an asset’s price from falling.
As you can see from the chart below, knowing where support is can also help you spot a buying opportunity because this is typically where market participants start to perceive value and prices start to rise once more.
The Trendlines
The aforementioned illustrations demonstrate how a fixed level prohibits an asset’s price from rising or falling.
One of the most prevalent types of support and resistance is the static barrier, but since the price of financial assets often moves in one of two directions—upward or downward—it is usual to observe price barriers that shift over time.
Because of this, it’s crucial to understand trending and trendlines when studying support and resistance.
Resistance levels emerge as the price action slows and begins to move back toward the trendline when the market is heading upward.
This happens as a result of profit-taking or impending uncertainty for a certain problem or industry. A short-term peak is produced as a result of the price action’s “plateau” effect, or a minor decline in stock price.
Because historically this has been a zone that has kept the price of the asset from dropping significantly lower, many traders will pay close attention to the security’s price as it declines near the trendline’s wider support.
An asset might be supported by a trendline for a number of years, as you can see from the Newmont Mining Corp (NEM) chart below.
Observe how the trendline in this instance sustained the price of Newmont’s shares for a considerable amount of time.
On the other hand, traders will look for a sequence of dropping peaks and attempt to link these peaks with a trendline when the market is heading downward.
Most traders will keep an eye out for selling pressure on the asset as the price approaches the trendline and may even think about opening a short position because historically, this location has driven the price lower.
The more times the price has previously been unable to go over an identified level, whether it was found with a trendline or through any other approach, the greater the support/resistance of that level is thought to be.
Because these areas frequently indicate the prices that are the most relevant to an asset’s movement, many technical traders will use their recognised support and resistance levels to pick strategic entry/exit positions.
At these prices, the majority of traders are confident in the asset’s intrinsic value, therefore the volume typically rises above average, making it much harder for traders to continue driving the price higher or lower.
The round numbers
Another typical feature of support and resistance is that an asset’s price may find it challenging to rise over a round amount, such as $50 or $100 per share.
When the price is at a whole number, most novice traders are more likely to purchase or sell an asset because they believe the stock to be reasonably valued at that point.
The majority of target prices or stop orders are established at round price levels rather than at specific prices, like $50.06, by both retail investors and major investment banks.
These round numbers frequently function as powerful pricing barriers since so many orders are placed at the same level.
A degree of resistance would be established if every client of an investment bank placed sell orders at, say, a proposed target of $55.
It would require a disproportionately large number of purchases to offset these sales.
The Moving Averages
Most technical traders use moving averages and other technical indicators to help predict future short-term momentum, but they are often unaware of the power these tools offer for locating levels of support and resistance.
A moving average is a continuously shifting line that smooths out historical price data while also enabling the trader to recognise support and resistance, as you can see from the chart below.
Observe how the moving average functions as resistance when the trend is down and as support when it is up for the asset’s price.
Moving averages can be used by traders in many different ways, such as anticipating upward movements when price lines cross above a significant moving average or closing out positions when the price declines below a moving average.
The moving average frequently generates “automatic” support and resistance levels regardless of how it is applied.
The majority of traders will experiment with several moving average time periods to determine which one does this particular task the best.
Additional Indicators
Numerous indicators have been created in technical analysis to pinpoint potential price movement constraints. Using these indications properly frequently requires practise and experience because they initially appear to be hard.
Regardless of an indicator’s intricacy, the interpretation of the discovered barrier must be compatible with results obtained using less complicated techniques.
For instance, the Fibonacci retracement tool, which precisely pinpoints levels of possible support and resistance, is a favourite among many short-term traders.
It is outside the purview of this article to explain how this indicator determines the various levels of support and resistance, but you can see in Figure 5 that the identified levels (shown as dotted lines) act as roadblocks to the price’s short-term movement.
Zones’ significance as measured
- Amount of Touches
- Prior Price movement
- Volume at specific Prices
- Time
Recall how we referred to the ceiling as resistance and the floor as support? A rubber ball that bounces in a room will hit the floor (as support), then rebound off the ceiling, continuing the home comparison (resistance).
A trade instrument that is going back and forth between support and resistance levels is comparable to a ball that keeps bouncing between the floor and the ceiling.
Now see the ball changing into a bowling ball in midair. The ball will pass through the support level if this additional force is provided on the way up, and the resistance level if applied on the way down.
In each case, additional vigour or enthusiasm on the part of the bulls or bears is required to overcome the support or resistance.
Sometimes, when the price seeks to go back up, a previous support level will turn into a resistance level, and vice versa, as the price briefly falls back, a resistance level will turn into a support level.
Price charts offer hints about the significance of these price levels as well as the ability for traders and investors to visually identify regions of support and resistance. More particularly, they consider:
Amount of Touches
A support or resistance level gains importance the more times the price tests it. More buyers and sellers will take notice of and make trading decisions on a support or resistance level when prices keep bouncing off of it.
Prior Price movement
When steep gains or declines precede support and resistance zones, they are likely to be more significant.
For instance, compared to a calm, steady rise, a fast, steep advance or uptrend may have greater competition and enthusiasm and may be stopped by a more significant resistance level.
Slow progress might not garner as much notice. This is a fantastic illustration of how technical indicators are influenced by market psychology.
Volume at specific Prices
The strength of the support or resistance level is likely to increase with the amount of buying and selling that has taken place at a certain price level.
This is because traders and investors are likely to employ these price levels again because they remember them.
People are far more comfortable closing off a deal at the breakeven point than than at a loss, therefore when great activity and large volume occur and the price decreases, a lot of selling will probably take place when the price recovers to that level.
Time
Zones of support and resistance take on greater importance if the levels have undergone repeated testing over an extended period of time.
Final Thoughts
One of the fundamental ideas utilised by technical analysts, support and resistance levels constitute the foundation of many different technical analysis tools.
A support level, which can be thought of as the floor under trade prices, and a resistance level, which can be looked of as the ceiling, make up the fundamentals of support and resistance.
Prices drop and test the level of support; if it “holds,” the price will rise again; if it is violated, the price will fall through the level of support and probably continue to decline to the level of the next support.
Because it provides traders with a precise idea of what price levels should support the price of a particular security in the case of a downturn, determining future levels of support can significantly increase the returns of a short-term investing strategy.
On the other hand, anticipating a level of resistance might be helpful because it denotes a place where investors are very inclined to sell the share and could potentially impair a long position.
As was already noted, there are a variety of ways to look for support and resistance, but regardless of the approach, the interpretation is the same: it inhibits the price of the underlying asset from advancing in a particular direction.
Support (Support Level)
- What is mean Support (Support Level)?
- What can you learn from Support Levels?
- An example of using Support Levels
- The distinction between Resistance Level and Support Level
- Limitations of Support use
What is mean Support (Support Level)?
Support, also known as a support level, is the price that an asset does not drop below for an extended period of time. When an asset’s price declines, buyers enter the market, creating the asset’s support level.
Drawing a line around the lowest lows for the time period under consideration allows for the simple support level to be charted in technical analysis.
In accordance with the general price movement, the support line may be flat or inclined up or down. The identification of more sophisticated forms of support can be done using additional technical indicators and charting methods.
The support level is a price that an asset finds difficult to fall below over a certain amount of time. Support levels can be shown visually using several technical indicators or just by connecting the lowest lows of the relevant timeframe.
A more dynamic perspective of support is provided by using trendlines or integrating moving averages.
What can you learn from Support Levels?
The support level, as used in general finance, is the price at which investors often buy or sell a company. It speaks about the stock price that a business rarely drops below.
When a stock price approaches its support level, it either holds and is confirmed as such, or the stock price continues to fall, in which case the previously shown support level must be adjusted to take into account the new lows.
Limit orders or simply the market activity of traders and investors can generate support levels in equities.
Technical analysis’s core concepts are levels of support and resistance. Technical analysis uses patterns and trends in price, whereas fundamental analysis considers a company’s performance and history to forecast the direction of the stock.
Support and resistance levels are used by traders to determine the best times to enter and exit transactions.
Depending on what the trader observes from other indications and the price action on the chart, a break of the support levels is viewed as an opportunity to buy in or take a short position. Even a reversal could be indicated if the breach happens during an advance.
An example of using Support Levels
Consider that you are researching the share price history of the fictitious Montreal Trucking Company, which trades on the stock market under the ticker MTC.
You are looking for the best time to buy a long position in the business. MTC has fluctuated in price over the last year between $7 and $15 per share.
The stock of MTC rises to $15 in the second month of the time period you are researching, but by the fourth month it has dropped to $7.
It increases once more by month 7 to $15 before dropping to $10 in month 9. By month 11, it rises once more to $15, then drops to $13 for the following 30 days before rising once again to $15.
You currently have a support level of $7 and a resistance level of $15. You can place a purchase order at the lower end of the range if neither the fundamentals nor the technicals show any additional cause for concern.
Even though you properly recognised the upside, there is a chance that an uptrend may develop if your order is positioned exactly at the $7 level of support.
In this case, your order may never be fulfilled. Another reason why it’s crucial to use indicators that are more complex than just simple support is due to this.
The distinction between Resistance Level and Support Level
The price that a stock cannot fall below is the support level, and the price that a stock cannot rise beyond is the resistance level.
Consider the resistance level as the ceiling and the support level as the floor.
Limitations of Support use
Support is less of a technical signal and more of a market idea. Moving averages and price by volume charts are two common indicators that use these ideas and are more actionable than the more straightforward displays.
Since there is always a potential that support will move higher and the order for a long position won’t be completed, traders will typically prefer to observe the support band rather than a single line linking the lowest lows.
Resistance (Resistance Level)
- What is mean Resistance (Resistance Level)
- What can you learn from Resistance Levels?
- An example of using Resistance Level
- The distinction between Support Level and Resistance Level
- Limitations of Resistance use
What is mean Resistance (Resistance Level)
The price at which an asset’s price experiences pressure as it rises from a burgeoning number of sellers who want to sell at that price is known as resistance, or a resistance level.
Resistance levels may be long-lasting or short-lived depending on whether new information surfaces and alters the market’s perception of the asset as a whole.
Drawing a line along the highest highs for the time period under consideration will allow you to chart the simple resistance level in terms of technical analysis. Support can be compared to resistance.
This line may be straight or angled, depending on how the price moves. However, there are more sophisticated approaches that use bands, trendlines, and moving averages to spot resistance.
A price point that an asset has struggled to surpass over the course of the time period under consideration is known as a resistance level. Instead of just drawing a line between highs, resistance can be represented visually using a variety of technical indicators.
Trendlines can give a chart a more dynamic view of resistance.
What can you learn from Resistance Levels?
Two of the key ideas in technical analysis of stock prices are resistance and support levels.
Technical analysis is a way of evaluating equities that operates under the premise that market forces virtually instantly factor the vast majority of accessible information about a stock, bond, commodity, or currency into the price.
As a result, this hypothesis contends that basing investing choices on this information is not lucrative.
Instead, technical traders examine how markets have behaved in such circumstances in the past to predict how stocks will move in the near future.
Technical traders determine the levels of support and resistance so they can calculate when to buy and sell a stock to profit from any breakouts or trend reversals.
Resistance can be utilised as a risk management technique in addition to locating entry and exit sites.
Investors can use any break of the resistance level as a trading signal, or they can create stop-loss orders to follow it.
As fresh price data is received, the simply resistance level must be updated, although the majority of systems provide visualisations of resistance that may be generated dynamically.
Additionally, other technical indicators operate as substitutes for resistance at various stages of price action.
When the price action is below the line, as in a downtrend, a simple moving average, for instance, can be utilised as a visual representation of resistance.
An example of using Resistance Level
Consider that you are trying to decide the best timing to sell Montreal Trucking Company’s stock short and are looking at the price history of its shares, which trade under the ticker code MTC.
The stock has fluctuated between $7 and $15 per share during the last 12 months. The stock of MTC rises to $15 in the second month of the time period you are researching, but by the fourth month it has dropped to $7.
It rises once again to $15 by month seven before declining to $10 in month nine. By month 11, it rises once more to $15, then drops to $13 for the following 30 days before rising once again to $15.
You have now successfully identified the $15 resistance level. The market has clearly demonstrated that if MTC stock exceeds $15, an overwhelming quantity of supply enters the market to block its further climb.
Therefore now would be a good time to sell the stock short if you do not see any reason for it to break out of the band it has been trading in for the previous year.
However, caution is advised because resistance levels can occasionally be broken and left in their wake if fundamental drivers of a stock, such as an expanding economy or new efficiencies in a company’s business strategy, prevail over technical forces.
The distinction between Support Level and Resistance Level
Support and opposition work best together. Support creates the floor, while resistance sets the stock, commodity, or currency’s current price ceiling.
Price action breaches of support or resistance are regarded as trading opportunities.
Limitations of Resistance use
Resistance is less of a technical signal and more of a market idea. As already noted.
There are much more sophisticated technical analysis tools that embrace the idea of resistance while being much more active and useful than simply drawing a resistance line over recent highs.
Among these are trendlines, price by volume (PBV) charts, and the vast array of moving averages that may be adjusted by time periods to provide a range for resistance levels.
Support and Resistance zones in Psychology
- The Psychology of Resistance and Support
- Various shifting zones examples
- Human Behavior and Emotions
- Psychological Price Levels
- What are Levels of Support and Resistance, and How do they develop?
- Why do Technical Traders need to be aware of these Levels?
- How does anchoring affect the Levels of Support and Resistance?
Technical analysts utilise support and resistance levels to pinpoint price areas on a chart where there is a good chance that the current trend will stall or reverse.
Support develops because of a concentration of demand in areas where a decline is predicted to pause.
Where supply is concentrated and a rise is anticipated to stall momentarily, resistance develops.
These levels are based on market emotion and anchoring, despite the fact that they may initially seem random.
Here, we investigate how human emotion and psychology play a significant role in shaping support and resistance zones.
The terms “trading level support and resistance” refer to significant price levels on charts that frequently serve as barriers that stop an asset’s price from moving in a particular direction.
Market psychology is important because it helps traders and investors predict future market movement by helping them recall the past and respond to shifting circumstances.
Understanding the feeling and emotion of individual market actors and how that aggregates up to the market might show shifting zones of resistance and support.
The Psychology of Resistance and Support
At each particular price level in a certain financial market, there are normally three different sorts of participants:
- Those who have been holding out hope for a price increase
- Those that are short and anticipating a price decline
- Those that are waiting to make a decision on their trading strategy
The traders who are long as the price rises from a support level are pleased and may think about increasing their holdings if the price drops back down to the same support level.
The short traders in this scenario are starting to doubt their trades and may buy to cover (exit the position) to get out at, or near, breakeven if the price retests the support level.
If the price drops down to the support level, the traders who choose not to buy at this price point earlier may be prepared to get in and go long.
In essence, this level may have a lot of traders willing to buy, which strengthens it as a level of support.
The price will probably bounce back from the support level once more if all these participants decide to buy at this level.
However, the price may drop straight through the support level. Traders will soon notice that the support level is not holding as the price keeps falling.
The long traders can hold off on closing their trades in an effort to cut their losses until the price returns to the previous support level, which will now operate as resistance.
If the price returns to the price level, the short traders will be pleased and may think about increasing their positions.
Finally, if the price returns to the prior support level, traders who have not yet entered the market may go short in expectation of more price declines.
Once more, a lot of traders might be prepared to act at this point, but this time they’ll be selling rather than buying. The opposite of this behaviour is seen in traders’ responses to resistance levels.
Various shifting zones examples
These instances highlight a key idea in technical analysis: What was once supportive will later turn into resistant.
Once the price crosses over the resistance level, levels that served as resistance will, in contrast, serve as support.
This is visible on every chart and in every time range. Although short-term traders, in particular, prefer smaller time frames, investors frequently use daily charts to identify regions of support and resistance.
For instance, the chart below shows the Montreal Trucking Company’s weekly candlestick price chart.
The price encounters resistance at $15, as indicated by the blue horizontal line, inhibiting price growth over that point. Additionally, there seems to be support at $7.
Human Behavior and Emotions
When addressing the psychology of financial markets, concepts like fear, greed, and herd instinct frequently come up. This is due to the fact that market price activity is influenced by human emotions.
Therefore, a price chart can be seen as a timeline of optimism and pessimism. Price graphs show how market players respond to shifting future expectations.
For instance, the behaviour of market participants described above demonstrates fear and greed.
The traders who are already long will increase positions as the price falls back to a support level in order to profit even more.
As a result of their concern over losing money, the traders who are short will buy to cover.
The tendency of traders to gather close to these support and resistance levels, thus strengthening them, is another example of herd instinct in action.
Due to a phenomenon known as anchoring, traders may potentially collectively experience a conditioned response of some kind.
A behavioural finance heuristic known as “anchoring” refers to the unconscious use of unimportant data, such as the price at which a security was purchased, as a fixed reference point (or “anchor”) for making decisions regarding that security in the future.
As a result, if a degree of resistance or support has been created in the past, it can act as a shared anchor for future encounters of that level of support or opposition.
The daily chart of pharmaceutical company Eli Lilly (NYSE:LLY) is depicted in the picture below. It shows that two prior price peaks have created resistance, reflecting a considerable rise.
Indeed, given that price level offered solid support on at least three prior occasions, we see support repeatedly when the price lowers down to about $33.50.
Psychological Price Levels
Round numbers (as they are simple to recall), 52-week highs and lows, and historic events like new market highs are other support and resistance levels that are affected by human emotion.
There are several reasons why traders and investors are drawn to these psychological price levels. One is that these prices have historically been significant, and traders are aware that they probably will be again.
Market participants frequently predicate future predictions on past events; if a support level has historically provided reliable support, the trader may presume that it will do so again.
Another factor that makes emotional price levels important is the attention and expectation they generate. As more traders are ready to react, this might result in an increase in volume.
For instance, when a market reaches a new high, traders become excited because they anticipate price growth without any past resistance levels to impede it.
Typically with greater market involvement, the excitement experienced as the bulls assume control can lead to a big push over the prior high that lasts until the enthusiasm wanes and a new resistance level is created.
What are Levels of Support and Resistance, and How do they develop?
When it comes to market pricing, a support level can be compared to the floor and a resistance level to the roof.
Prices drop and test the level of support; if it “holds,” the price will rise again; if it is violated, the price will fall through the level of support and probably continue to decline to the level of the next support.
Market psychology, which establishes optimistic mood at the support and bearish sentiment at the resistance, helps to form these levels.
Why do Technical Traders need to be aware of these Levels?
Support and resistance levels are used by traders to determine the best times to enter and exit transactions.
Depending on what the trader observes from other indications and the price action on the chart, a break of the support levels is viewed as an opportunity to buy in or take a short position.
Even a reversal could be indicated if the breach happens during an advance.
How does anchoring affect the Levels of Support and Resistance?
By using anchoring, traders can provide significance to an arbitrary value.
Therefore, a level of support or resistance that has already been created may serve as an anchor at which subsequent levels of support or resistance will be seen, even though these levels may not necessarily reflect any fundamentals.
Similar to round figures, psychological anchors such as $1,000 or $25,000 may act as levels of support or resistance even though they are not fundamentally driven. Traders may modify their anchors as these levels are crossed.
Final Thoughts
Technical analysts use support and resistance zones to analyse historical prices and forecast future market movements.
Simple basic analysis techniques, like horizontal lines or up-and-down trendlines, or more complex indicators, like Fibonacci retracements, can be used to define these zones.
As traders and investors reflect on the past, respond to shifting circumstances, and predict future market movement, market psychology plays a significant impact in an instrument’s price movement.
The only approach to predict what the market will do next is to understand what it is considering.
Reversals of Support and Resistance
- Basic
- Reversal
- Does this actually occur?
The idea that a “broken support level will become a future region of resistance” or that a “prior level of resistance will become a support” is one that is frequently heard by traders who utilise technical analysis.
Even many seasoned traders rarely fully comprehend or appreciate this unique role reversal since to a beginning trader, phrases like these sound foreign.
The purpose of this essay is to clarify the significance of support and resistance levels and to show why traders should pay close attention to role reversals.
Basic
You must first have a fundamental comprehension of these significant principles in order to comprehend the role reversal between support and opposition.
Technical traders use the phrases “support” and “resistance” to describe particular price levels that have historically stopped investors from driving the price of an underlying asset in a particular direction.
Let’s say ABC stock has repeatedly tried to move below an ascending trendline over the past six months, but despite numerous approaches to this line, it has been unable to do so.
Because it corresponds to a price level where the majority of investors feel safe purchasing the asset, in this instance, the trendline is known as a support level because it prevents the market from sending prices much lower.
On the other hand, traders use the term “resistance” to indicate when an asset’s price finds it difficult to rise over a certain price level, which ultimately leads the asset’s price to fall.
Reversal
When the price of the underlying asset ultimately manages to break out and go past a specified support or resistance level, it is one of the most fascinating phenomena involving support and resistance.
It is common for a former level of support to switch to acting as a new location of short-term resistance when this occurs.
The price that was able to support the price movement at points 1 and 2 is shown by the dotted line in the chart below. However, once the price drops below this line, as shown by points 3 and 4, this support turns into resistance.
When the price rises over resistance, the process is reversed. Points 1 and 2 start off as price obstacles, but as you can see in the chart below, once the bulls are able to push the price above the dotted line, it turns into a place of support (illustrated by points 3 and 4).
Does this actually occur?
When learning about the shifting roles of support and resistance, many traders are frequently quite dubious and don’t think the ideas depicted in the theoretical images above actually occur.
Reversals do, in fact, happen frequently, even on stock market giants’ charts like ExxonMobil, Walmart, and even the Dow Jones Industrial Average (DJIA).
Let’s examine a few recent market instances that are based on true events. The bulls were able to prevent the DJIA from falling below the trendline throughout the first few months of 2006.
As shown in the chart below, but this rise came to an end when the index closed below the trendline’s support on May 17, 2006.
Traders interpreted the break below the trendline as a warning that if the bulls react by driving the price higher once again, the former support level might turn into a point of resistance.
As you can see, the broken trendline turned into a point of resistance and was a significant contributor to the subsequent 5-percent loss.
On the chart of the enormous oil company Exon-Mobil (XOM) in the picture below, another intriguing illustration of the role-reversal phenomenon can be seen.
During the 2005–2006 year, the share price attempted to increase on two distinct times but was stopped by the $65 mark.
After the mid-July 2006 break over the $65 level, the prior $65 resistance now serves as support.
Technical traders in this situation would continue to have a positive outlook on this stock unless they saw XOM drop below the new support of $65 in which case they would keep an eye out for the previous support to turn into new resistance.
The last example, Walmart Inc. (WMT), is comparable to the XOM chart since both charts show how a support/resistance level can influence how a company performs on the stock market.
As shown in the example below, the $51 level held back the bears from driving the price of Walmart shares lower for the majority of 2004, but it rapidly turned into resistance as the bears drove the shares below it in the early months of 2005.
Since the $51 level has consistently shown to be a significant component that influences the long-term direction of Walmart’s share price, many technical traders remained attentive to Walmart throughout this time period.
Final Thoughts
Early in their careers, many technical or other short-term traders learn about support and resistance levels.
The exciting role reversal that can place if the price of an underlying asset rises above one of these crucial levels, however, is something that some of these traders never completely grasp or comprehend.
Critics of the idea of reversing roles disagree that it occurs in reality, yet as was seen above, this phenomena can be seen on the charts of some of the most recognisable names in the stock market.
Top 5 Best Resistance and Support Indicators
- Fibonacci Support and Resistance
- Wolfe Waves
- Camarilla Pivots
- Murrey Math Lines (MML)
- Admiral Pivot
Final words
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