Whenever you switch onto Business News Channel, You must be hearing the below mentioned terms
- Nifty has a support at 5500
- Sensex Resistance at 20550
- Important Support Level for BHEL is 2200, it should break this
Bla Bla Bla!!!!!!!!!!!!!!!!!
You as a trader or a investor must be wandering, what is the meaning of support & Resistance & how pratically it works. The ball hits the floor & bounces back from that same point. Support & Resistances are just like that where prices are sandwiched between support & Resistance points.
Support
Whenever a stock moves in a downtrend or even index & when a downtrending stock hits support (stock previous low), it bounces like a ball from the same point & thus creating that point a support point.
Resistance
On the other side, when a uptrending stock hits resistance, it stops & tumbles at the same point just like a man who hits his head on a branch while climbing a tree.
Why Support & Resistance Works
Support & Resistances work because people have memories of the past & it is our memories of traders which prompt them to buy at those support levels & sell at crucial resistance levels. Open Interest or volumes at this juncture are hugh as the bulls & bears fight against each other to win their respective battles.
Stock Markets Investing or Trading works on two important factors which are the base of Economics i.e demand & supply.
"Support is a price level of the stock or of the Index where there is a lot of demand or there are lot of buyers who want to buy the stock at that support price level & the bulls dont let price fall further"
"Resistance is that price level of the stock where there is a lot of supply & the stock find more sellers than buyers & the price tends to stop at that level"
The chart below is a 6-8 month chart of BHEL. Now in this price has stopped at the same point after 6 odd months or about 120 trading sessions i.e 2000 odd levels, see that trendline
I hope by studying this chart of BHEL, you would be able to understand the importance of Support levels. If you still have any queries, kindly leave a comment. You will get a reply very soon!!!
If you like reading this post, also read
- Dont Trade But Invest for Simple Reasons
- Why do you need a financial plan
- Rupee Cost Averaging helps you to become a Crorepati
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