Support level - what is it in trading

Support level – what is it in trading

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Hello, dear readers of the techyadjectives.com! In today’s article, we will talk about support levels in trading . You will learn what a support level is and what they mean, we will also give examples of a support level and explain the difference between a support level and a resistance level. Read about all this below.

Support level - what is it in trading

What is a support level?

A support or support level refers to a price level below which an asset does not drop for a specified period of time. An asset’s support level is created by buyers entering the market whenever the asset falls to a lower price. In technical analysis , a simple support level can be drawn by drawing a line along the lowest lows of the time period under consideration. The support line can be flat or sloping up or down in line with the overall price trend . Other technical indicators and charting methods can be used to determine more advanced support versions.

What are the support levels talking about?

In general financial terms, a support level is the level at which buyers tend to buy or enter a stock. This refers to the share price, below which the company rarely falls. When a stock’s price falls to its support level, the support level is maintained and confirmed, or the stock continues to decline and the previously shown support level must change to include new lows. Support levels in stocks can be created by limit orders or simply by the market actions of traders and investors.

Support and resistance levels are at the heart of technical analysis. Fundamental analysis uses a company’s performance and history to determine the future direction of a stock, while technical analysis uses patterns and trends in price. Traders use resistance levels & support to plan entry and exit points for trades. If the price movement on the chart breaks through the support levels, this is seen as an opportunity to buy or go short, depending on what the trader sees from other indicators. If the breakout occurs in an uptrend , it may even be a sign of a reversal.

Support levels example

Let’s say you’re looking at the stock price history of a fictitious Monday Tuesday Company with the ticker MTC. You are trying to determine the ideal time to go long in a company. Over the past year, MTC shares have traded between $7 and $15 per share. During the second month of the period you study MTC, the stock rises to $15, but by the fourth month it drops to $7. By the 7th month, it rises again to $15 and then drops to $10 in the 9th month. By the 11th month, it rises again to $15 and drops to $13 over the next 30 days before rising again to $15.

At this point, you have an established support level at $7 and resistance at $15. If there are no other technical or fundamental concerns , you can place a buy order at the bottom of the range. If you place an order right at the $7 support level, there is a risk that an uptrend will set in and your order may never fill despite correctly identifying upside potential. This is another reason why it is important to turn to more subtle indicators, beyond simple support.

The difference between a support level and a resistance level

If a support level is a price below which a stock will not go down, then a resistance level is a price point above which a stock has trouble rising. Think of a support level as a floor and a resistance level as a ceiling.

Restrictions on using the support level

The support level is more of a market concept than a true technical indicator . There are many popular indicators that incorporate these concepts, such as price-by-volume charts and moving averages, which are more powerful than simpler visualizations. As a general rule, traders want to see a support band rather than a single line connecting the lowest lows, as there is always a chance that the support level will move up and the long position will remain unfilled.

Those interested in learning more about support and other aspects of technical analysis may want to enroll in one of the best technical analysis courses.

Summary

  • A support level is a price point below which an asset tries to fall within a given period of time.
  • Support levels can be visualized using various technical indicators, or simply draw a line connecting the lowest lows in a period.
  • Applying trendlines or including moving averages provides a more dynamic view of support.

And that’s all about Support Level today . I hope the article was useful to you. Share the article on social networks and instant messengers and bookmark the site. Good luck and see you on the pages of the techyadjectives.com!

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