Support and resistance indicators are basically used for representing the point the demand meets the supply. In the market price are raised when the demand is high and supply is low. As the demand increase, the price tends to increase with it, as the supply increase the price start to fall down.
Understanding support and resistance
Support is generally the price level at which the demand is stated to be strong and prevents the price to decline. According to logic when the price moves towards the support, the buyer becomes more influenced to buy and the sellers show less interest in selling. The time when price touches the support level, it is assumed that demand overcomes the supply and helps the price to increase again.
Resistance is generally the price level at which the selling is stated to be strong and prevents the price to rise further. According to logic when the price moves towards the resistance, the seller becomes more influenced to sell and the buyers show less interest in buying. The time when price touches the resistance level, it is assumed that supply overcomes the demand and stops the price to overcome resistance level.
Support and resistance level are generally established on the basis of the previous brick. Support can be developed with the help of previous low reactions and resistance can be developed by the help of previous high reactions. It is basically a very helpful concept for the traders, although it is not an exact science and it is even hard to find the exact point of support and resistance level. It does not make any logic if the support and resistance level is broken with 1/6 price. This is the reason why the support and resistance indicator level is maintained.
Scott October 11th, 2017
Posted In: Finance