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Great site Kenny.

Technical Analysis written in a straightforward way so that everyone understands.

There's only a small few who get it consistantly correct and you are certainly in that group. Chris

Thanks for putting this all together and sharing! BHW

Awesome Stuff! Kenny has shown time and time again the ability to show us direction in these markets. Khalsa

Kenny, I appreciate your insight and analysis. You make sense of what I can rarely see.

Thanks for sharing.

Took a gold short at 1240 just closed at 1203 :-)))))))))))))))))) ........ top call!!  Gekko

Trading Support and Resistance Indicator

Technical Analysis Fundamentals

What is Trading Support and Resistance (S&R)

Technical analysis stock trading is based on the art of finding the trading support and resistance indicator levels with technical analysis charts.
  • Support - This is a term used to describe a price level where a markets prices cant break down through.They may be being held up by the market for any number of reasons but essentially it is a price level where the bulls are coming in to buy the market causing prices to rise back up again.
    It may also be the level where sellers are closing short positions (buying) to take profits and so there is a lack of selling pressure.
  • Resistance -  This is where rising prices seem to stick and just cant quite break up through a particular price level. Each time it gets there, the market falls back again. This level may be where a lot of buyers are taking profits (selling) or where the bears are coming into sell the market.

Learn how to draw trend lines for finding trading support and resistance indicator levels and you will have the two key  fundamentals of understanding financial technical analysis charts. So what is Support and Resistance trading?

Finding Support and Resistance

Why does a market find support at a specific price. This could be for any number of reasons which we go into in detail in the various pages in the rest of our technical analysis charts section. It could even be something as simple as a round number.

  • Traders and investors love round numbers. When most folks decide to take a trade they usually have a number in mind that they want to trade at. For example, a trader may decide that they will buy when a stock price drops to $20, so when a stock drops from, say $23.68 there can be a number of traders with the same idea and are waiting to enter the market when prices fall back to $20

  • $20 is just an example as the same scenario would have applied at $23, $22 and $21 on the way down but just at at a lesser degree as more buyers will have come in at the bigger round numbers. 10s, 100s, 1,000s and 10,000s get the drift, right?
The point is that support is created where buyers have gained control. The strength of that support depends on how much extra buying there is at that level.

The opposite is true for resistance. That is where selling has overwhelmed the buying.

trading support and resistance
Trading with Support and Resistance Indicator Trend Lines

Trading Support and Resistance Indicator

Once the market has found support at a particular level, it stands to reason that if there were enough traders and investors buying at that point in the past then there is a very good possibility that if prices drop back to that level, they will do so again.
  • Day traders and other short term traders will then also buy at this level in the belief that prices will rise again.
  • Those that have already bought may even add to their positions by buying some more.
  • Those that sold where the stock found resistance may take profits at previous support.
As you can see, there are a number of factors as to why a specific price may repeatedly provide trading support or resistance,  the more instances that prices do find the desired support or resistance at that point will increase the traders confidence in the value of that price level encouraging even more trading at that point.

trading support and resistance
Trading with Support and Resistance Indicator Trend Lines

Trading Support and Resistance Patterns

There are a number of stock chart patterns that frequently recur in technical analysis charts that a trader can use to try and gain an understanding to the markets current mood. These patterns are created when market prices are contained within a trading range for a period of time. Trading in a range between support and resistance zones seemingly unable to break beyond, in either direction.

These patterns often create familiar shapes that can signify to an analyst which direction prices are likely to eventually break in with an uncanny degree of regularity. Trading support and resistance patterns involves trading with the ranges until prices do eventually make that break.

Traders need to be very wary of pre-empting these breaks. Of course it is always obvious after the fact but that does not help you make money trading. Trading support and resistance lines continue to be support and resistance - until they don't. In other words, we should expect  a support trend line to continue to provide support until the markets tell you otherwise. A technical analyst always lets the market show the way.

Support becomes Resistance

In a normal market, once support or resistance lines do break, prices will nearly always come back to test the break. It breaks down through the support level and prices will return towards the underside of it to backtest the trend lines break.  You can see in the example charts above, that the market broke out through and then returned to test if the break was real or not.

Conservative traders will even wait for this backest of the trend lines before entering a trade. This type of trade allows you to keep stop loss levels very tight since  a close back into the trading range would indicate that the break did not have the true support of the markets and the break was likely to be a panic move.
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