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What is Stock Support and Resistance and How Do I Use It
What is Stock Support and Resistance and How Do I Use It

What is Stock Support and Resistance and How Do I Use It?

In investing in stocks, every investor or  trader  needs to understand in advance the important elements contained in it. This special knowledge is needed so that investors or  traders  can trade safely and generate profitable profits.

In addition to knowing terms related to stock investment, you also need to know how to analyze the right techniques and fundamentals in buying and selling stock prices. It aims to determine the feasibility of a company’s stock price by looking at market conditions and the company concerned.

After that, you also need to know when is the right time to make a purchase or sale so that you can get the maximum profit. Well, to find out, you need to read stock charts through the  support  and  resistance indicators . For that, understand also what is  support resistance  in stocks.

Understanding  Support  and  Resistance

The terms  support  and  resistance  are commonly used by  traders  to observe stock prices in the market. Support  refers to the lowest level of a stock price at a time so it must be anticipated that the stock price does not decrease further.

Meanwhile,  resistance  is the opposite of  support,  which is the highest price level of a stock at a certain time. This moment makes the shareholders who sell, making it difficult for the share price to rise to a higher level.

At the point of  resistance , the stock price will fall. There are times when  resistance  can be broken with  a breakout  or price increase. However, there are also moments when the stock price continues to touch the  next resistance point  which is marked by a decline in stock prices.

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Support  and  Resistance  in Stocks

In the world of stocks,  support  and  resistance  are commonly used as tools for  traders  to analyze stock price movements in the market. In stock movement graphics,  support  is marked by a straight horizontal line that is below the stock price movement. 

Traders  can determine the lower limit of the price with this line which indicates that the stock price will not fall again. They will buy it with the calculation that after this, the price will rise again. 

Each  trader  has their  own support  line according to their knowledge and beliefs. The more the number of low points that can be used as a  support line , the higher the strength of the  support  . 

Unlike the horizontal line below the stock price chart,  resistance  is indicated by a horizontal line above the stock price chart. To anticipate losses,  traders  should avoid stocks whose price touches the  resistance line. This is because this type of stock will experience a decline in price after reaching its highest price. 

The more high points that can be used as  resistance lines , the higher the strength of the  resistance  . Even so, that does not mean the price of a stock cannot pass the point of  support  or  resistance. Stock prices that pass through these two points are usually referred to as  break support  or  break resistance .

How to Use  Support  and  Resistance  for Beginners

The explanation above is one way to use  support  and  resistance  in stocks which is called the  classic support resistance method  or draw a simple horizontal line. 

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In addition, there are other ways that are commonly used to determine  support  and  resistance points , including drawing trend lines , using moving average technical indicators  ,  Fibonacci retracements , determining  support and resistance  points based on psychological numbers, and using  pivot indicators. points .

However, apart from drawing horizontal lines, there are three ways that are commonly used to determine  support  and  resistance  areas for beginners in order to get the right information regarding stock movements in the market.

1. Trend line

This is done by drawing a trend line as well as drawing a horizontal line in the previous explanation. However, in this method, the line is made diagonally by following the trend of the stock price ( uptrend  or  downtrend ).

The method:

  • Choose a stock on the Stock Exchange, then see its movement over a certain period of time.
  • Focus on stock price movements that form an uptrend ( uptrend ) and down ( downtrend ).
  • Draw a slash that connects the stock’s lows to other lows in a trend to determine  support  and draw a slash to connect the stock’s highs with trend points to determine  resistance.

2. Moving average

This technique is used by drawing a line according to the average change in the price of an asset over a certain period of time. This stock price moving average indicator is commonly used to determine  support and resistance points,  namely by:

  • Choose a stock on the Stock Exchange, then see its movement over a certain period of time.
  • Use the moving average indicator   and select the 20-day timeframe (MA20).
  • Look at the  moving average  (MA) line on the chart to determine  support  and  resistance.

3. Fibonacci retracement

This method is done by drawing a horizontal line that shows the ratio of the Fibonacci numbers, which is a technical indicator commonly used to determine  potential support   on a stock price movement chart. The method:

  • Choose a stock on the Stock Exchange, then see its movement over a certain period of time.
  • Apply the  Fibonacci retracement indicator  on the stock price movement chart by drawing the Fibonacci line from the lowest point ( swing low ) to the highest price point ( swing high ).
  • The  support  area is indicated by the price point that intersects the Fibonacci line from the lowest point ( swing low ), while the  resistance  area is indicated by the price point that intersects the Fibonacci line from the highest point ( swing high ).
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This is an explanation of what  support resistance  is and how to use  support and resistance  in stocks to analyze stock price movements in the market. By understanding both, it will be easier for you to make a decision in selling or buying shares.