By [http://ezinearticles.com/?expert=Danny_A_Younes]Danny A Younes
Over the next 4 weeks I will be covering different technical analysis patterns. In this article I will be covering support and resistance. Support and resistance are levels where pricing action on a stock chart hits and simply just bounces off it.
Support levels give the stock support and will generally cause the stock to bounce off them in an upward direction. Stock prices are supported off the horizontal line. It's a price point where buyers begin to out-number sellers.
This floor of support indicates indicates that sellers are becoming less enthusiastic in exiting and selling their stock.
A support level holds prices up. Stock prices keep lowering down to the support level and are seen to continually rebounding of it again.
When a stock prices breaches through a significant support level, the stock price is likely to plummet as investor fear emerges and a reality.
Resistance levels are the exact opposite and tend cause the stock to bounce off them in a downward direction. A resistance level depicts the highest price anyone is willing to pay for a stock. Sellers defeating the bulls.
Stock prices continually rise in price to hit the overvalued resistance level, then drift back down again.
When the stock price breaches through a significant resistance level, the stock price is likely to trend upwards fast as investor greed becomes apparent and a reality.
SUPPORT & RESISTANCE CHANGING ROLES
Support and resistance barrier levels will often change roles. Once a stock gains enough momentum to break through each level, the role of this level is now reversed.
Support and resistance levels are validated at horizontal lines, they will often be found at round numbers. The longer stock prices remains at a significant horizontal line, the more valid that price zone is for the stock.
A support level is a price zone which can halt a possible fall in the stock price, whereas a resistance level is a zone which provides an obstacle for a future higher stock price.
Support and resistance levels can be horizontal or sloping lines.
PSYCHOLOGY OF HUMAN EMOTION
Support levels depict the lowest price anyone is willing to pay for a stock, hence the buyers are defeating the bears. If the stock is to sell for less, owners exhibit the following primal instincts. The cycle begins:.
The stock is being sold off. "Should I exit?" "What if I am wrong?".
Support has been breached. "What if the price drops further?".
"I 'd better take what I can get"-- "Forget about the idea of profit, I just want to recoup back my initial investment"-- a familiar story.
SELL, SELL, SELL.
Prospective educated buyers wait for a testing of support. Further validation indicates that bargain hunting is Technical Analysis Patterns Fear & Greed taking place. Buyers enter a rising buying volume confirms the move. The stock is now moving effortlessly and is fast approaching the resistance level. SELL, SELL, SELL.
Meanwhile the average investor reads & awakens in the newspaper that the stock is poised for explosive growth. "I don't want to miss out, I want to make money back from the previous trade". BUY, BUY, BUY.
The stock hist resistance and profit taking with large selling volume is confirmed. "It'll come around, I'll just sit & wait"-- LONG TERM!!!
To be successful in identifying technical analysis patterns you need to be educated. It's no use in getting onto a trade because of a hunch or a tip. Most of the time you will just be donating back to the market.
Mastery of Stock Market Intelligence is an education that will take your trading to a whole new level. It will teach you technical analysis patterns and techniques that will increase your probability of profiting from the stock market.
Stay tuned for my next article on double tops and double bottoms.
Support and resistance are levels where pricing action on a stock chart hits and simply just bounces off it.
Support levels give the stock support and will generally cause the stock to bounce off them in an upward direction. Stock prices are supported off the horizontal line. Stock prices continually rise in price to hit the overvalued resistance level, then drift back down again.
Support levels depict the lowest price anyone is willing to pay for a stock, hence the buyers are defeating the bears.
Danny Younes is a professional investor and wealth strategist and has been investing in the [http://www.stockmarketspot.com]stock market for over 5 years. [http://stockmarketspot.com/technical-analysis-patterns-support-and-resistance/]Technical analysis patterns is key in stacking the odds in your favour when investing in the stock market
Article Source: [http://EzineArticles.com/?Technical-Analysis---How-To-Identify-Support-And-Resistance-Levels&id=7960880] Technical Analysis - How To Identify Support And Resistance Levels