Google Ad Choice

Thursday, February 3, 2011

Learning Process - How to understand Resistance and Support Line

Learning Process for Technical Analysis #1
Resistance and Support line

Resistance = Known as Ceiling / Roof / Limit for Buying Interest/ Peak of Bullish

Support = Known as the Floor/ The last level of defence, Limit of Selling Interest

Think of this resistance and support like a bouncing ball as shown below. If more pressure applied on this bouncing ball it will bounce hard when it hits the support or resistance but from time to time the height of the bouncing will reduce eventually until new pressure is applied. This is same as our stock market which is controlled by our volume of buying and selling interest

Steps to plot resistance and support.
Let use Kencana as our example to plotting the Resistance and Support. Let use the maximum time frame from Jan 2007 until September 2010

1) Maximize the Chart view on Price only without any other indicators from 2007 until September 2010. Let say we are in September 2010 and plotting the resistance and support to analyze the stock for Oct 2010

2) Find where is current price situated ( RM1.63) and check the Resistance and Bottom Nearby.the RM1.63. Check out the Nearby Resistance highlighted in Blue Circle and Support Highlighted in Red Circle

3) Draw the Horizontal line on the Tip of the Resistance and Support as shown below in 3a and 3b

                                                                         3a) Resistance Line

                                                                    3b)  Support Line

4) Once draw the Resistance and support Line, Zoom into the current Price to check on the current situation on the 6 September 2010 which close at 1.63 show below

As you can observe,

First Resistance (R1)      = 1.68
Second Resistance (R2) = 1.81
First Support (S1)          = 1.57
Second Support (S2)     = 1.47

And currently the price it is heading towards R1, and here this is what decision making whether to go into the market or not.. If you are thinking to buy now it is wrong !!!

WHY!! TO BE CONTINUE LATER... Please stay tune :)

1 comment: