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Support and Resistances

Posted By On 9/18/2008 01:32:00 PM Under

1. One can define the support for a stock as a price level where the demand is proving to be strong enough and as a result is able to ensure that the price do not drop further.

2. The logic stems from the fact that the price drops towards support and as a net result is available at a cheap valuation and thus buyers are more inclined to buy and sellers become less inclined to sell.

3. One can safely conclude that nearing support level price; demand  overcomes supply and thus it prevents stock price from falling further below support.

4,  At times one will witness that support for a stock is not holding and thus breaking of support signifies that the bears have won out over the bulls.  Further corollary of said fact is that once support is broken, fresh support level needs to be established at a lower level.

5. In next post we will discuss the resistance and its significance for the stock.

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