In technical analysis, support and resistance levels can take various forms and they are not limited to just horizontal lines. Some common types of support and resistance are in the below-
- Horizontal Support and Resistance:
- Horizontal support and resistance levels are the most basic and widely used technical tools in technical analysis of a stock. They are formed by connecting price lows or highs that occur at approximately the same price level.
- Traders often draw horizontal lines to mark these levels on a price chart, representing areas where buying or selling pressure has historically been significant.
- Trendline Support and Resistance:
- Trendlines are diagonal lines drawn on a chart to connect a series of higher lows in an uptrend (support) or lower highs in a downtrend (resistance).
- Trendlines act as dynamic support or resistance levels and can provide insights into the strength and direction of a trend.
- Moving Averages:
- Moving averages are technical indicators that smooth out price data over a specified period.
- Traders often use moving averages such as the 20-days or 50-day or 200-day moving average as dynamic support or resistance levels.
- When the price approaches a moving average from below, it may act as support while approaching it from above may act as resistance.
- Fibonacci Retracement Levels:
- Fibonacci retracement levels are derived from the Fibonacci sequence, a mathematical series.
- Traders, investors or analysts use Fibonacci retracement levels to identify potential support and resistance levels based on the ratio of key Fibonacci numbers, as example 38.2%, 50%, 61.8%.
- These levels are drawn by connecting a low to a high (in an uptrend) or a high to a low (in a downtrend).
- Psychological Levels:
- Psychological levels are specific price levels that often end with round numbers or significant digits, as example Tk. 10, Tk. 100, Tk. 1,000.
- These levels can act as support or resistance due to the psychological impact they have on traders and investors.
- Pivot Points:
- Pivot points are calculated based on high, low and close prices of previous day's.
- They provide potential support and resistance levels for the current trading day.
- Volume-Based Support and Resistance:
- Support and resistance levels can also be identified based on significant trading volumes at specific price levels.
- Areas where high trading volumes have occurred in the past may act as support or resistance due to the presence of substantial market interest.
It's important to note that, support and resistance levels are not always precise and they should be used in conjunction with other technical analysis tools for confirmation. Traders or investors often look for multiple indications of support or resistance to increase their reliability.
