Stock Market | Stock Market Technical Analysis-support And Resistance Levels Key ...

A support level is the price at which we may expect a large increase in the demand for a stock. or more buying. A resistance level is the price at which we may expect a large increase in the supply, or more selling of a stock. The price level where a huge amount of stock has changed hands, can be classified as a support or resistance level.

As an example, if a stock trades for 2 months between $24 and $28 per share, the support level becomes $24. The resistance level is at $28 per share. If the stock breaks out of this trading range, and goes up to something like $28.75, we now have what is called a "breakout". The savvy trader will analyze the volume on the day of the breakout. If the volume is much larger than normal, the breakout would be considered valid, and have a much greater chance of success. This is a stock market technical analysis key. It also adds validity to a breakout if the stock closes above the resistance area it earlier broke through.

The time period support and resistance areas stay valid will vary greatly. They can be very short, or even last for decades. The longer a support or resistance area stays valid, the more significant it becomes. A breakout of a year-long resistance area is much more important, than a breakout of a week-long resistance area.

A great example is high grade copper. Copper was in a trading range that lasted over 35 years. In 2005, copper finally broke through this decades long resistance level. Because of the enormous significance of this breakout, the price of copper shot up like a rocket ship. The very best traders make an astonishing fortune.

Support and resistance areas can be found almost anytime, and on any chart. They make up the basic components that ultimately turn into sophisticated chart patterns. These patterns are what analysts use to predict price movements. As always, the key to proficiency, is to put as many factors as possible in your favor, before taking a position in the market. You always want the odds in your favor, on each and every trade you make. If you do this, and also implement solid money management, you are well on your way to a possible fortune.

Look for another stock market technical analysis article in the near future.