Let’s get down to the basics of Technical Analysis —something called support and resistance. Support is a price area when a stock finds more buying pressure than selling pressure and the buyers drive the price higher. Resistance is a price area when a stock finds more selling pressure than buying pressure and the sellers send the price lower.
TEST TIME
I’m going to give you some price tickers. I challenge you to find a support price. Take VZ for example. In the comment section below, write which price is the support on VZ right now on a daily chart. If you said $46 area, you would be correct!
Support has two other names. Demand is another term for support. Literally where buyers demand to buy the price of a stock. The more times a stock reaches a support or demand area and bounces, the stronger that price. (Stronger means, the more likely it will bounce again in the future)
So, we have support is synonymous is demand. Another term that’s equivalent is ‘the floor.’ I think that term kind of speaks for its self. Think… if you take a rubber ball and throw it to the floor, it will bounce up. Go forth, and seek the support/demand/floor for QQQ. If you said somewhere between $84-$85 you would be correct!
Now supply is same term for resistance and ceiling. This is the price where a stock gets sold. The more times the stock reaches that price and fails the stronger it is. Look at both HD and EBAY and see if you can find the ceiling, demand, resistance prices. If you said $81-$83 and $56-59 respectively, you would be correct, in my opinion.
These lines give you (as the trader) a frame work of where you should be buying and where you should be selling. Locating these areas will give you a great perspective to formulate your plan! Then – the market is your domain!
Have fun out there folks! If you have any questions about the above, feel free to let me know!
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