Understanding the dynamics between support and resistance levels is a core component to analyzing market movements at the technical level. The first step in analyzing these levels requires a trader to be adept at reading Candlestick charts, which you will see often in all charting and research tools.
A Candlestick Chart is a chart that depicts the events of a day in the form of a Candlestick. It enables even those who are new to Technical Analysis to easily understand the data by just glancing through the chart. Here we will analyze Candlestick based on the daily chart which, is the most commonly used.
One Candlestick on a daily Chart means one day’s worth of data. On a 30 day, chart this could be just 3 hours’ worth of data. The Candlestick depicts four very important data points: the Open Price, Close Price, High and Low for that day.
A blue Candlestick indicates that the stock made an upward momentum for the day. In such cases the Close Price will be higher than the Open Price, indicating gain. A white Candlestick means the Close price is below the Open Price. So, by just glancing at the chart you can easily figure out what happened on a specific day. You may also see Candlesticks in blue and red that indicate upward and downward movement, respectively.
Support is the price level at which demand is likely to be strong enough to prevent the price from seeing further declines. As the price decreases and approaches major support levels, and the commodity becomes excessively cheaper, traders are more inclined to buy the asset. In this sense, it can be said that support sometimes reflects a buying opportunity. Tradespoon provides you with both historical and forecasting charts that automatically plot key support levels.
Resistance is the price level at which supply is likely to be strong enough to prevent the price from further rallies. As the price increases and approaches resistance, the asset becomes excessively expensive and buyers are less active. Resistance often signals a selling opportunity.
Tradespoon provides key Support and Resistance levels with every trade recommendation. In Figure 34, sellers begin to put lot of pressure on the stock. It was facing resistance. Overhead Resistance is important because it can help with Strike price selection or help to determine at what price the stock is overbought.