Wednesday, March 2, 2011

Factors for support and resistance levels

To check out that how your support and resistance levels are significant or strong, below are the some factors you always keep in mind:

1. Time. The more time a stock trades at a price level the more significant that level becomes. This may not occur in the form of multiple clearly defined swings, but rather in a consolidation period where many of the lows of the consolidation area are at the same price level forming support.
2. Number of occurrences. This is another way of looking at how much time a stock has traded at a particular level. If a stock has created multiple swing lows at the same price level over time, then that price level will be significant support in the future.
3. Volume. The higher the relative volume is at a particular price level, the more likely it is that the price level will become significant support or resistance. This should make sense. If support, for example, is a function of the number of buyers willing to purchase the stock at a certain price, then a price level which has attracted high volume in the past is more likely to act as support than the price level that has not attracted volume in the past.
4. How recently it was formed. Support and resistance are created by the fact that there is real demand (creating support) or a big supply of stock (creating resistance) at certain price levels. Support and resistance levels that have been created recently are likely to be more significant than those that were formed weeks or months ago. It is for this reason that the day trader should always know the prior day’s high and low. These points represent the most recent support and resistance on the daily chart.

1 comment:

keshab patel said...

Sir,
Well I use stochastic with MACD for day trading. How accurate is that for day trading in ur opinion ?