Support Level
From Timetotrade
A support level is a price point where an equity's price pivots and changes direction. They are formed when you can draw a horizontal line between two or more price pivot points.
The support level is the lowest price that a equity trades at, over a period of time. The more frequently a support level is tested (i.e. hits a previous support level pivot point but does not fall below it), the stronger the support at that level. Some traders believe that the stronger the support at a given level, the less likely it is to break below that level in the future. It is said that if an Equity breaks prior levels of support only by a small portion, it will drop sharply until a new level of support is reached.
A support level can become a resistance level if the price of the Equity falls below the support level; similarly a resistance level can become a support level if the price of the Equity rises above the support level as illustrated in the following price chart example:
If a stock price is moving between support and resistance levels, then a basic investment strategy commonly used by traders, is to buy a stock at support and sell at resistance, then short at resistance and cover the short at support as per the following example:
When judging entry and exit investment investment timing using support or resistance levels it is important to choose a chart based on a price interval period that aligns with your trading strategy time frame. Short term traders tend to use charts based on interval periods, such as 1 minute (i.e. the price of the Equity is plotted on the chart every 1 minute), with longer term traders using price charts based on hourly, daily, weekly or monthly interval periods. Typically traders use shorter term interval charts when making a final decisions on when to invest, such as the following example based on 1 week of historical data with price plotted every 15 minutes. In this example the early signs that the stock was coming out of a downward trend was when it started to form support at $30.48 and then started to form higher highs and higher lows signalling a change from negative to positive trending.
You can use the timetotrade rising and falling price threshold triggers to create alerts that will notify you by email or text message when a stock or option hits a support or resistance level.
Further Reading
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