What are the advantages and disadvantages of taking a trade when price just enters a support/resistance level?
In the business of share trading, the new traders who take steps to stabilize their position are required to know the two most important concepts of trading namely support and resistance.
These two characteristics which are beyond the conception of a share market beginner come with many complications that will allow him to plan his entry/exit when a particular stock enters the support or resistance level.
Both of these concepts of support and resistance level recognized as fundamental trading tips support seasoned investors to decide on their entry/exit moves.
What is a support level?
It is also known as support. The support refers to a price level when investors plan their entry into the stock market.
Found out as a price below which the stock does not intend to drop, this price is based on the past performance of a particular stock in question.
This state of affairsspins and leads to two cases; one is the confirmation and the second is the abolition.
Confirmation is apparent in the form of investors choosing that stock, sourcing it to rise and abolition occurs when the price exceeds the support level, prompting the market to look for a new level.
What is a resistance level?
It is just the opposite of the support level. A resistance level is mainly linked to auctions.
It is a point of meeting when the buyers assemble with sellers, with the junction taking place at the ceiling in contrast to the floor.
Two cases are clear to occur. If the volume brings in more sellers, the price is liable to jump off the ceiling; evident the resistance level.
In disparity, if the supplementary volumes enthuse more buyers to come in, a noteworthy fall in the resistance level is observed, prompting the share prices to rise over the ceiling.
This is a positive turn of events when the resistance level is invalid to become a new support level for the stock.
How to read the Support Level on Chart?
Share prices which are subject to recurrent oscillations command the attention of investors at all times.
Aiding investors make their move; it is significant for them to read the resistance level on the chart which can bring a chance for them to make a good buy when the prices are balanced to rise higher.
How to read the Resistance Level on Chart?
In disparity, when the price enters the resistance level, the market is noticeable of traders’ combat with a pressure to sell, when the price of the stock is balanced to fall further, going by its past performance.
Hence, these two factors are important for every investor to base his entry and exit moves in the share market when these determinants go a long way in representing the direction of the price of the stock, whether it will rise or drop.