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IAMLEGEND LESSON OF THE DAY!!! ~~Support & Resistance~~

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IAMLEGEND   Thursday, 01/26/12 07:24:11 PM
Re: IAMLEGEND post# 3397
Post # of 83010 
IAMLEGEND LESSON OF THE DAY!!! ~~Support & Resistance~~

~~link back for previous days~~


Support and resistance
represent key junctures where the forces of supply and demand meet.Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.

Resistance
is the price level at which selling is thought to be strong enough to prevent the price from rising further. sellers become more inclined to sell and buyers become less inclined to buy.Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level.



















~~Types of Support and Resistance~~


Highs and Lows











Moving Averages
Most technical traders incorporate the power of various technical indicators, such as moving averages, to aid in predicting future short-term momentum, but these traders never fully realize the ability these tools have for identifying levels of support and resistance.




Indicators-Fibonacci retracement

In technical analysis, many indicators have been developed for to identify barriers to future price action. These indicators seem complicated at first and it often takes practice and experience to use them effectively. Regardless of an indicator's complexity, however, the interpretation of the identified barrier should be consistent to those achieved through simpler methods.

For example, the Fibonacci retracement tool is a favorite among many short-term traders because it clearly identifies levels of potential support/resistance. The reasoning behind how this indicator calculates the various levels of support and resistance is beyond the scope of this article, but notice in Figure 5 how the identified levels (dotted lines) are barriers to the short-term direction of the price





Trendlines



















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