Support and Resistance – Your Stock Market Winning Indicator

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Introduction

How will you successfully trade the financial markets and grow your retirement pot, investment account and other wealth accumulation portfolio you currently own or manage if you do not understand the basic driving forces of Stock Market Price Change? Are you thinking of increasing  Return on Investment on your portfolio? Most dummy traders feel that the market is always against them and it takes luck to win on trades.

Then look no further as we will take a journey into understanding

  • Market Price Change – Driving Forces
  • Support & Resistance
  • Basic Charting

What Is A Share of Stock? A share of ownership in a company, this can be private or public. This share holds monetary value also called equity. As the price goes up we can profit.

What Causes the Price to Change? There are 2 factors from research that cause change in price and they are; Fundamental factors and Speculation.

Fundamental factors include financial data, Overall economy, Sector analysis and Company leadership

Fundamental have their own weakness which are formula determines “real value, time and effort it take is a lot, requires a lot of work to be done and each sector is like learning to invest in a new market, the biggest weakness for fundamentals is that they are only released 4 times a year! I am sure no one wants to wait to make critical investment decisions on what to invest in and how to invest when you can make money and grow investment today.

So What REALLY Drives the Price Change

The driver for price of a stock is Buyers and Sellers Speculation. The Present Value of a stock is equal to what someone is willing to pay for it.

 What Are the Real Factors to Price?

  • What the buyers and sellers THINK about a stock (we are all Sentimental and this drive the price)
  • Who are the buyers & sellers? You and I drive prices not machines or algorithms but people.

It is interesting to know that people are very predictable and driven by emotions. This is the advantage we have in the market to predict the actions of buyers and sellers via technical analysis to place trades and win in virtually all our trades.

 Technical Analysis

The study of the price action of the market as it is reflected in the chart we have already discussed this previously, check here for more information on charts and how to read charts. In reality technical analysis is the study of human emotion in the market as it is reflected in the price of the stock.

Technical analysis is the cash king compared to the fundamental factor and in my opinion through technical analysis we get new data every minute hereby allowing us to analyse quickly and make decisions on the market.

When we apply technical analysis, you guess right we do not need to wait 3 months for the fundamental information because technical analysis do not require fundamentals. Technical analysis is the most efficient method to predict prices and people sentiments.

“Stocks are predictable because people are predictable”

Support and Resistance

Support: The price point where a stock finds more buying pressure than selling pressure and the buying pressure drive drives the price higher (Bullish). In the figure below support is the bottom line.

Resistance: The price point where a stock finds more selling pressure than buying pressure, and the selling pressure drive drives the price lower (Bearish). In the figure below resistance is the top line.

Support and Resistance

A Channel

A stock moving sideways between support and resistance in a predictable repeating pattern

 

 

An Upward Channel

A stock moving sideways between support and resistance in a predictable repeating pattern while making higher highs and higher lows. Just as the name implies.

 

Downward Channel

A stock moving sideways between support and resistance in a predictable repeating pattern while making lower highs and lower lows

Basic Charting

The first question will be what is a price chart? this is simply the plotting of the past price performance of a stock for the purpose of analysing market behaviour. This is the primary tool of the technical trader.

We have done a whole session on charts.  Click below to learn more;

Line Drawing on Charts – The How and What to Look for

Always start with a line chart by drawing from Left to right, Joining the highest and lowest price point.

When drawing your lines  when 2 points join it is a line but when 3 points connect it makes a trend.

Lines on Chart

A price with multiple touches is more important then switch your chart to a candlestick chart for more confirmation. Stocks can touch a line from either the top or the bottom this simply means its support or resistance point.

When drawing a line start with at least 2-3 years on your chart to give you the big picture. I always use a daily chart when trading but you could go up to a weekly chart if needed but always end with a daily.

 Conclusion

To understand what we have gone through on support and resistance you will be required to practise the steps by drawing lines in your charting software. Here is a link to a free charting software you can start using right now for your education.

See if you can find stocks in a “channel” and then paste it in the comment section below to show your progress. if you require more information and assistance why not subscribe to get advanced education and as a welcome you will be sent a chart candlestick flashcard.

 

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