Types of support and resistance in technical analysis

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.

Use of support and resistance in technical analysis

Support and resistance are essential concepts in technical analysis, used to identify key levels on a price chart where the buying and selling pressure for a financial instrument are likely to cause a pause or reversal in its price movement. Traders and analysts use support and resistance levels to make informed decisions about market trends, entry and exit points, and potential price targets. Here's how support and resistance are applied in technical analysis:

• Support Level: 
• Support represents a price level at which buying pressure is expected to be strong enough to prevent the price from falling further.
• It is often identified by a horizontal line connecting multiple lows or a zone where the price tends to bounce back from after declining.
• Traders consider support levels as potential buying opportunities, anticipating that the price will reverse or rebound from these levels.
• If the price breaks below a support level, it may indicate a weakening of buying pressure and potentially lead to further downside movement.

• Resistance Level: 
• Resistance refers to a price level at which selling pressure is expected to be strong enough to prevent the price from rising further.
• It is often identified by a horizontal line connecting multiple highs or a zone where the price struggles to surpass after advancing.
• Traders view resistance levels as potential selling opportunities, expecting the price to reverse or face selling pressure near these levels.
• If the price breaks above a resistance level, it may signal increased buying strength and potentially lead to further upward movement.

• Role Reversal: 
• Once a support level is breached, it often becomes a new resistance level. Conversely, once a resistance level is broken, it can turn into a new support level.
• This role reversal concept suggests that previous support or resistance levels can act as future barriers to price movement.

• Confirmation and Validation: 
• Traders look for confirmation and validation of support and resistance levels through various technical indicators, chart patterns, or volume analysis.
• Multiple instances of the price bouncing off a particular level strengthen the significance of that support or resistance level.
• The more times a level has been tested and held, the more importance it generally carries.

• Breakouts and Breakdowns:
• Breakout: A price movement that surpasses a resistance level, indicating a potential upward trend continuation or a new trend formation.
• Breakdown: A price movement that falls below a support level, suggesting a potential downward trend continuation or a new trend formation.
• Traders often monitor breakouts and breakdowns to identify potential trading opportunities or confirm the strength of a trend.

Support and resistance levels serve as important reference points for traders and investors. They help identify potential price reversal areas, define risk and reward levels for trades, and provide insights into market sentiment and supply and demand dynamics. However, it's important to note that support and resistance levels are not foolproof indicators and should be used in conjunction with other technical analysis tools for comprehensive decision-making.

Support and resistance

Support and resistance are key concepts in technical analysis (TA) that help analysts, traders or investors to identify levels on a price chart where the price is likely to encounter barriers to its movement.

Support:

Support refers to a price level at which buying pressure is expected to be strong enough to prevent the price from falling further. It is seen as a floor beneath the price where demand for the asset is anticipated to exceed supply that causing the price to reverse or 'bounce' upwards.

Support levels are often identified as previous lows or areas where the price has historically found buying interest.

Resistance:

Resistance is just the opposite of support. It refers to a price level at which selling pressure is expected to be strong enough to prevent the price from rising further. It is seen as a ceiling above the price where supply of the asset is expected to exceed demand that causing the price to reverse or 'pull-back' downwards.

Resistance levels are often identified as previous highs or areas where the price has historically encountered selling pressure.

Support and resistance levels can be identified by using various methods and tools like:

• Horizontal lines: Analysts can draw horizontal lines on a price chart to point out key levels of support and resistance based on previous price reactions. These levels can act as reference points for future price movements.
• Trendlines: Trendlines are diagonal lines drawn on a price chart to connect consecutive high prices or low prices. They can act as areas of support (in the case of an upward trendline) or resistance (in the case of a downward trendline) as the price approaches them.
• Moving averages: Moving averages (MA) such as the 20-day, 50-day or 200-day moving average are popular technical indicators used to identify dynamic support and resistance levels. When the price approaches a moving average, it can act as a support or resistance level, depending on the direction of the moving average.
• Pivot points: Pivot points are calculated based on the previous day's price action and can help identify potential support and resistance levels for the current trading day. Traders use pivot points along with other technical indicators to determine potential price reversals or breakouts.

Support and resistance levels are significant because they provide analysts with important reference points for making future trade decisions. Analysts often look for opportunities to enter trades near support levels with the expectation that the price will bounce higher and they may consider selling or taking profits near resistance levels with the anticipation of a price reversal. These levels can also be used to set stop-loss (SL) orders or take-profit (TP) targets to manage risk and optimize trade outcomes.