Support And Resistance Indicator | Indicator Series

The purpose of support and resistance indicators is to predict a pause or a reversal in an upward or downward trend due to supply and demand. 

A resistance indicator is shown when an uptrend is expected to pause temporarily because of an increase of supply for that asset when selling becomes lucrative.  A support indicator is when a downtrend is expected to pause due to increased demand for buying an asset at a low price.

Resistance or Ceiling Trendline

Let’s use a price of $80 a share as an example.  When an upward trending price rises over a period of time and gets close to the price of $80 but never quite manages to go higher than $80, this signifies a resistance level or ceiling. 

This is the trendline level, $80 a share, which the price will either go through, which will signify the current upward trend is going to reverse or weaken or bounce off the trendline level and continue on the prior trend trajectory.

Support or Floor Trendline

The same holds true for the support or floor trendline.  Let’s use $40 a share as an example.  If the downward trending price decreases over a period of time and gets close to the price of $40 but never manages to drop lower than $40, this signifies support or floor level. 

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The price will either go through the trendline and will signify the current downward trend will reverse or weaken or rebound off the trendline level and continue on the prior trend trajectory.

The space between $40 and $80 is the zone in which the price for this asset is predictably charted over time.  Knowing where the trendlines are can help in deciding when to enter or exit into a trade.

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