As we have learnt earlier in the stock market technical analysis, that every chart contains peaks and troughs. They either make an upward trend or a downward trend characterized by ascending or descending (respectively) peaks and troughs. There are two determinants present in chart analysis of these peaks and troughs. They basically make the market trading (indices points) levels. Further explanations will be continued in later section of the article. Following is the explanation.
- Support Level: Support level is formed in continuation with the prior trough in a chart. If the prices start getting down, there are two potential opportunities. First is, the support level will persist and the market will have a reconciliation, and second, it may be wiped up and a decline will take place. In the terms of stock exchanges, it can be defined as a level beneath the market where buying pressure tends to overcome the selling pressure.
- Resistance Level: resistance level is characterized by a prior peak. It is marked as a level beyond the market when the selling pressure is over the buying pressure. It further tends to boost the market activity.
Both of the levels have reversal roles all along. For instance, if a support level is broken by the market forces, it will become a new resistance level and vice versa. Following visual aid can work even better:
It is related to the time frame as well. The latest the support or resistance support level is reconfirmed, the more force it applies on the following market activity.