Definition of Support and Resistance
Definition of support and resistance is a level or zone in stock prices, forex, commodities and other capital market investments.
Definition of Resistance is a zone or level where there is a tendency for prices to go back down, because the tendency of sellers is more than buyers, Supply is more than Demand. Resistance is also a level where this level can certainly prevent prices from going up higher because prices have reached overbought.
Definition Support is a zone or level where there is a tendency for prices to rise again, because the tendency of buyers is more than the seller. Demand is more than Supply.
Support and Resistance are very important especially to determine the take profit point and stop loss. Support and Resistance can be regarded as critical levels which are the psychological levels of market participants in making trading decisions.
You need to know, the Support and resistance lines are not powerful lines or magic lines that can cause prices to rise if they touch Support, or prices will definitely drop if you touch the Resistance. However, the Support and Resistance Lines are zones where the psychological reflection of the actors themselves.
Support and Resistance is one of the main tools for transactions by some traders.
There is a Zig-zag pattern that is pointing up (Bullish) in the Uptrend as illustrated above. When the price movement moves up and then falls again, the highest price achieved is called resistance.
The lowest price before price movements rise up is called Support. In the second pair of moments, the Resistance level value is always higher than the Support value level.
There are 2 things to remember about Support and Resistance:
- In the price movement moves (rises) past the resistance, the Resistance will usually turn into Support. Likewise vice versa, when the price movement moves (falls) past support, the support will change to resistance.
- The more often the price moves (rises) and tests a resistance but does not succeed in penetrating it. This means that the stronger the price tendency will swing / swing in the area of support and resistance.
New levels of Support and Resistance
If the support / resistance level is successfully broken, then that level will be the opposite level from before. That is, if a support line is broken by the price, then the line will change to the resistance line. The stronger the support, the stronger the resistance will be if the price breaks through. Likewise with the opposite.
What we need to emphasize is, When can a line of Support / Resistance be declared impregnable or valid?
If the level of Support or Resistance is valid, it is broken by knowing if the closing price of the last candle is below / above the Support / Resistance level.
A valid Support level is broken if the last closing price / closing is currently below the support level. While the Level Resistance is valid if the last closing price / closing is currently above the resistance level.
See the example below