Support

What Is Support?

Support is the price point at which the price of an asset is stopped (or held), which prevents it from going down. The support level usually occurs due to intense buying pressure at that price point. In trading, support levels can also be due to large buy walls that sustain the price for a time, making it harder for the price to fall further.

In short, a support point acts like an unofficial and temporary “floor,” This support is usually due to a large volume of buyers at the price region. Therefore, we can define support levels as points at which the price can only decline due to stronger selling pressure.

As a matter of practice, traders and analysts derive support lines based on previous lows of the asset. This approach comes in handy when trying to forecast potential levels at which a price may reverse. These reversal points are considered good buying points, and traders can place their orders around their chosen points. Support lines are usually drawn horizontally, but they may also be presented through diagonal lines when merged with trend lines.

Support and Resistance

A trend line is drawn through a series of lowest points, which support price movements. These are points at which the price has bottomed out and did not fall any further. If the highest points are connected in a similar trend line, it will show what is known as the share's resistance level or resistance price. This means that it is the point at which the stock or index is facing difficulty (resistance) in crossing. 

At support levels, the support points are where buyers are waiting to buy the share as it reaches a low point. As the price drops, investors begin to line up their orders at the lowest possible price, generating a support point. This continues over several days/weeks, and a support price is generated as investors trade in the share. 

Similarly, a resistance level is generated for shares that are going through a rising trend. The resistance points are where a share will face a selling interest. Investors specify a high price point where they are willing to sell off a share and encash their earnings. This occurs through a certain period, creating a resistance trend line.