Part 5: Support and Resistance
Concept of Support & Resistance
In simple language, support & resistance do the work of the floor and ceiling of your room. Just like you would throw a ball on the floor, the floor will act as a support for the ball, making it bounce. Similarly, support areas act as the area where the price becomes stable from a fall and bounces up. On the other hand, if you would throw the ball towards the ceiling, the ceiling will act as resistance and deflect the ball downwards. Just like the ceiling, the resistance area will stop the price from moving upwards.
What is Support & Resistance/ Support & Resistance Zone?
Support- Support is an area where the buying interest is more. Due to this higher demand, the prices are pushed upwards from this area. This can be a single point or a complete zone. Mostly reversals occur at strong support areas. Support areas act as a floor for the dropping price to get stable. In the above image, it can be seen that the price rebounds on coming in contact with the support zone.
Resistance- Resistance is an area where the selling interest is more than the demand. Prices tend to fall from this area or zone. Support areas do the work of ceiling, stopping the price from breaking above the area
Flipping of Support/Resistance
Just for the sake of our example, assume that you can fly. Now try to fly and break above your ceiling. No doubt you will face initial rejection. But with multiple attempts, you might break above it. Once you are above the ceiling, the ceiling will act as your floor.
Same happens with the market price. After multiple rejections from the support (ceiling), the price ultimately manages to break above it. Once, the price is above the resistance area, the area starts acting like support (floor) for the price.