C. Support and Resistance

"Iearning is Like Rowing Upstream, Not to Advance is to Fall Back"

Support and Resistence

Support is a level below the market where buying pressure exceeds selling pressure and rally is halted. The exceed of demand will stop the decline of the price and raise the level of price.

Resistance is a level above the market where selling pressure exceeds buying pressure and rally is halted. The exceed of supply will stop the raise of the price and decline the level of price.

Support and Resistance areas are not predictors of where the price will reverse, but as the signal that there is a possible the price will reverse.

Resistance become new support

When the price penetrated resistance, there is a possible that the old resistance will be the new support.

This is happened because the new generation of bull or buyers who didn`t buy when the price lower than the price below resistance level are now anxious to buy when the prices return near that old resistance level.

Look at the example at figure 1.2 , when the price penetrated resistance level (3000) the buyer who didn`t buy when the price below 3000 are now anxiously buy when the price return near that 3000 (old resistance level).

Support become new resistance

When the price penetrated support, there is a possible that the old support will be the new resistance.

This is happened because the new generation of bear or sellers who didn`t sell when the price higher than the price above support level are now anxious to sell when the prices return near that old support level.

Look at the example at figure 1.3 , when the price penetrated support level (28000) the sellers who didn`t sell when the price above 28000 are now anxiously sell when the price return near that 28000 (old resistance level).

How i determine support and resistance?

This is the question that commonly asked by the beginner. Actually there are many ways to determine support and resistance, but I would like to determine the support and resistance by using moving average and vertical line.

Moving averages have many methods to analyze the market, one of them is using it for determining support and resistance. For determining support and resistance , I use 65 period of simple moving average (sma).

If the price above the 65 period of sma, i regard that 65 sma line as support level, while if the price below the 65 period of sma i regard that 65 sma line as resistance level.

There aro no rules to use 65 period of sma, the reason I used that period because I think this period suit with my trading style and the market i traded. So you can try the others period until you find the best period that suitable for you.

The other simple way, i determine support and resistance is using the lowest or highest price at certain periods then i put vertical line on it.