What do you mean by Support & Resistance in a Technical Analysis Chart?

Support

A straight line that connects three or more data points of a stock’s closing price or low price is called a support.

Support is the point where buying pressure is more than the selling pressure or you can say demand is greater than the supply. When stocks trades near support level it can be utilized as buying opportunity by keeping support as stop loss for your trade. Support is the psychological point where traders are willing to buy on the expectation that the stock price won’t drop more.

Resistance

Resistance is the point where selling pressure is more than the buying pressure or you can say supply is greater than the demand.

Resistance is the psychological point where traders are willing to sell with the expectation that the stock price won’t increase more. It is also considered as ceiling because these price levels prevent the stock from moving the price upward. When the stock trades near resistance level, trader/investor can liquidate his buy position or he can use this as a selling opportunity by keeping the resistance line as stop loss.

Note: Once a resistance or support level is broken, its role is reversed. If the price falls below support level, that level becomes resistance, if the price rises above resistance level, that level will act as a support level.

Support & Resistance in Technical analysis of stocks

As you can see from the above chart, the stock of DWARKESH has taken a support at around 182 levels and resistance at the level of 216.

Rules to determine importance of Support & Resistance

1. The more number of times the price halts or bounces from a particular price, the greater is its importance as support & resistance level.

2. The greater volume traded at a support & resistance level, greater is its importance.

Summary:

Support and Resistance are areas on the chart where price reverses temporarily or permanently. Hence it can be utilized to initiate buy and sell positions subsequently.

Support level occurs when the belief is that price will not fall further, while resistance level occurs when the belief is that the price will not move higher.