Education
Think of security prices as the result of a head-to-head battle between a bull (the buyer) and a bear (the seller). The bulls push prices higher and the bears push prices lower. The direction prices actually move reveals who is winning the battle.
Support is commonly defined as "a price level or area at which the demand for a stock will likely overwhelm the existing supply and halt the current decline." Resistance is defined as "a price level or area at which the supply for a stock will likely overwhelm the existing demand and halt the current advance."
Note that the words "or area" are part of the definition. Support and resistance are not "broken" by a one-penny violation. They are areas. Think of them as rubber bands, not glass plates. Note that the time frame matters also. A 10-cent violation of a 7-dollar stock on a 2-minute chart may be a major violation. However a 50-cent violation of the 200-period moving average on a daily chart on QCOM may be nothing. It is very relative. From here on out for simplicity support will be discussed as though all the concepts apply in reverse for resistance. The charts presented here are all the same chart, a daily of the Nasdaq Composite, the COMPX, with a 20- and 50-period moving average.
One Day Reversal
One Day reversal is the starting point for most reversal patterns. After an extended rally the stock gaps higher at the open to trade at a new high on a positive news announcement. As the session proceeds volume expands significantly but by the close the entire rally disappears and the stock closes lower.
One Day reversals are by definition one day events and as such technical targets are not implied but if you look at every major reversal pattern you will quickly see that it all began with a one day reversal.
Think of security prices as the result of a head-to-head battle between a bull (the buyer) and a bear (the seller). The bulls push prices higher and the bears push prices lower. The direction prices actually move reveals who is winning the battle.
Support is commonly defined as "a price level or area at which the demand for a stock will likely overwhelm the existing supply and halt the current decline." Resistance is defined as "a price level or area at which the supply for a stock will likely overwhelm the existing demand and halt the current advance."
Note that the words "or area" are part of the definition. Support and resistance are not "broken" by a one-penny violation. They are areas. Think of them as rubber bands, not glass plates. Note that the time frame matters also. A 10-cent violation of a 7-dollar stock on a 2-minute chart may be a major violation. However a 50-cent violation of the 200-period moving average on a daily chart on QCOM may be nothing. It is very relative. From here on out for simplicity support will be discussed as though all the concepts apply in reverse for resistance. The charts presented here are all the same chart, a daily of the Nasdaq Composite, the COMPX, with a 20- and 50-period moving average.
One Day Reversal
One Day reversal is the starting point for most reversal patterns. After an extended rally the stock gaps higher at the open to trade at a new high on a positive news announcement. As the session proceeds volume expands significantly but by the close the entire rally disappears and the stock closes lower.
One Day reversals are by definition one day events and as such technical targets are not implied but if you look at every major reversal pattern you will quickly see that it all began with a one day reversal.