Support and resistance in technical analysis

The technical analysts use either the line chart, bar chart, candlestick chart. The line chart uses the closing price of the asset to plot the graph. The bar chart and the candlestick charts use the high, low and the open and close of the stock in a particular time period to chart the graph. The candlestick chart has an advantage because it uses colours to indicate which candle is bullish and which is bearish. This makes it easy to read and analyze the chart. Make sure that you check their website for more details.

Technical analysis patterns

There are also certain phrases that are used by technical analysis to look at patterns on the chart. There are some well-known patterns like the head and shoulder pattern. This is a pattern that indicates that reversal is likely to occur. There is another popular pattern called the cup and the handle pattern which indicates that the stock will continue with its uptrend

The saucer or the rounding bottom is where the pattern indicates that there will be a bottoming of the downtrend after which the upturned will start. The double top and double bottom are other popular pattern formations which indicates that the price has failed two attempts to make higher that the previous high price or lower than the previous low price and thus this is a popular reversal pattern.

Support and resistance in technical analysis

The support is the lowest price of a security before the buyers start to buy it and drive its price up. Resistance is the highest price of a security before the sellers come in and start to drive its price downwards. The levels are not the fixed levels and they fluctuate. When the chart has channel line, then the bottom of the channel is where the price acts as a support and the above line is the resistance line. The support and resistance are used widely in technical analysis because it lets you know the trend and where the trend is likely to reverse.

Breakout trades

When the price of a stock does not respect the resistance level and goes above it then the resistance now becomes the support level. Similarly when the price of a stock goes below the support level, then this now becomes the new resistance level. However make sure that the drop or the rise is strong because it could also be a false breakout.

When the security trades near a support level then the traders wait and avoid buying exactly at the zone to give the price room to move and for the volatility to die down.

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