Often we hear to speak in the Stock Exchange analysis that this one or that value have a support in a certain amount, and that we have to be hanging to his possible rupture. The same happens, when a value that it raises they say that it meets a resistance that we have to watch.
Supports and resistances are two terms much used in Stock Exchange inside the technical analysis. As we could see in a previous article, the technical analysis supplies us with a series of indicators and graphs that they will allow us to identify what it can be the moment most adapted to enter or to go out of a value. And care, because if you read well, you will see that the term has been used “which can be”, because in technical analysis there is no absolute certainty, but a series of skills predictivas that like his name indicate, predict, but they do not have why 100 % is fulfilled, since it is based principally on similar movements exercised by the quotation of the value in previous epochs.
Of course, when more signs of alert coincide with the time, more reliability will have the moment of buy or sale.
Support and resistance are, possibly, two technical terms that more are heard in mouth of any analyst.
What is a support?
We say that a value finds a support when at this quotation level the demand concentrates, braking this way the fall of the value and even, in some cases, producing a rebound that allows the value to rise again. These supports it is necessary to watch them because when they break, ésto it is, when the demand stops pressing and the quotation goes away below him, the quotation runs the risk of continuing with his fall moreover below, and the one that earlier was a support turns then into resistance.
The sign that confirms the rupture of the support takes place when the quotation falls down more than 3 % below the level of the support. Only in this moment we must think that the support has been broken.
we must bear in mind also that it is normal that when a quotation breaks the support, and after a fallen felling, rebound to approach the ancient support (now turned into resistance), and once in the outskirts of the support it has later the definitive fall. It is a movement in zig zag (it breaks support and falls down a little, it rises again up to the support / resistance, falls down again more loudly).
Although we already will see it further on, this intermediate movement that makes it bounce up to the support before falling down again loudly is what is known like pull back.
What is a resistance?
Unlike it happens with the support, the resistance is a certain level of quotation of the value on which the offer concentrates, so that it will not break until the demand presses more than the offer. In the same way, we will not say that the resistance has broken until the quotation does not overcome in 3 % this level. When ésto it happens, the resistance happens to turn into support level for the value.
As with the support, also a pull back can take place. Namely it usually happens that the quotation breaks the resistance and rise a little, then lowers up to the ancient resistance / new support, and is in this moment when it rises definitely. This moment of pull back is the ideal sign of buy of the value.
Mutual considerations
- The level of support or resistance is so much stronger how many more times rebound in him.
- The hiring volume. The sign will be more trustworthy all the more hiring volume has.
Example of support and resistance
If véis the graph, you will realize that the key level of this value is in 14,5 points, more or less. During April to June it bounced up to 4 times in this support; on having done it so many times, this support could be considered to be more and more trustworthy. Nevertheless, in September, his definitive rupture, after 4 previous rebounds, provoked a sudden fall that took it at level of 8. The one that earlier was a support in 14,5 happened to turn into a serious resistance, as it was possible to verify later in December and January, when it bounced two times while it was rising, and could not break it to the rise.
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