Technical analysis basics: Understanding support and resistance

Julie Brownlee, Fsp Invest, 20 Aug. 2015

Tags: technical analysis, support, resistance, support levels, resistance levels, trading,

If you want to use technical analysis to help you find trades, there are a few key concepts that you need to understand first.

The most important of these is support and resistance. These crucial levels form the basis of so many technical analysis tools.

So what exactly is support and resistance?

Read on to find out…

Using charts as part of technical analysis

Charts are an integral part of technical analysis. Technical analysts believe price charts show everything you need to know about trading a share, commodity or other asset.

This is because technical analysis relies on history repeating itself. It may not do this exactly, but a price can follow the same or a similar pattern as it has before.

Technical analysts use historical price charts to predict where the price of an asset is going. They enter and exit trades based on this.

Where support and resistance come in

Whichever price chart you look at, you’ll notice the price jumps up and down as it progresses.

When a price makes a high and falls back, this is a resistance level. When a price hits a low and rises, this is a support level.

Have a look at the chart below showing these key levels…

Chart showing support and resistance levels

These levels of support and resistance become significant levels in the market, Frank Hemsley in Profit Watch explains. When the price comes back to these levels in the future, it tends to meet resistance.

You can use this information when you trade and it will help you make money from the market.

So there you have it. Understanding support and resistance.

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