Support and Resistance level in stock market

Support and resistance is the concept of technical analysis of stock market. In stock market if the demand for scrip increases then the price for that scrip will increase, and if the supply of that scrip increases then the price for that scrip will decrease.

What is support?

Support level is the level that protects prices from going down further. Support level is the level where buyer becomes more active and started buying stocks. That’s why demand for that stock goes higher. So that price for that stock reaches to the support level. In short at the support level demand of the stocks becomes stronger and that will prevent the price from further decline.

What is resistance?

 Resistance level is opposite of support level. Resistance level is the level that protects the prices from going higher. Resistance level is level where seller becomes more active and started selling stocks. That’s why supply for that stock goes higher. So that price for that stock reaches to the new resistance level. In short at the resistance level supply becomes stronger and that will prevent prices from further rising.

Generally we can find support level below the current price while resistance level is found above the current price of scrip. Some traders use trend line to find support or resistance level.

If the price goes below the support level then it will create a new resistance level, and if the price goes above the resistance level, it will create a new support level.

It is most difficult for technical analyst to find exact support and resistance level. It is even most important for technical analyst to find exact location of support and resistance level. If the scrip is approaching support level, than it is clear indication of increase in buying pressure. If the scrip is achieving resistance level, than it is clear indication of increase in selling pressure.

 If the relation between supply and demand gets changed, then stock will break support or resistance level. If the demand gets higher than supply, resistance break out can happen, and if the supply goes higher than demand, support break out occurs.

Breakouts in stock market

There are lots of traders in stock market who are waiting for breakout to be happening.  Breakout occurs when any stock make new high or reaches to the previous resistance level or break the trend line. Breakout in scrip could happen for 5 min or even years. E.g. if stock is trading in range bound condition few months and all of sudden stock is trading above the range bound price, you can say it is breakout stock.

 

Generally breakout stocks are profitable because many traders likes to trade when stock is in break out condition. So many traders will try to buy that scrip. So that volume for that scrip will increase and demand for that stock will also increases. And that will bust the price higher for that stock. If the stock has been in range bound condition for a long period and makes breakout, this kind of breakouts are stronger and gives more profit.

While breakout patterns are profitable traders must aware of false breakouts, false breakouts happens when many traders are not ready to buy that stock. In short volume of stock during that breakout condition is very low. Sometimes breakout condition could be generated by market makers, so you must confirm volume of stock during the break out condition before you start your trading for that scrip.

Sometimes you can see breakouts in penny scrip; these penny breakouts are highly risky and can generate more profit in short time.     

    

There are many ways to find breakout conditions; trader can manually search for breakouts. You can use volume shocker to find breakout stocks, if the volume of stock is higher than 5day average volume. You can use gap up stock screener with higher volume. Gap up stock screener allows you to find gap up stocks. Even trader can use trend to find the breakout conditions.

 

EMA Crossover to find Buying and selling opportunites

EMA stands for Exponential Moving Average. EMA is similar to SMA (simple Moving Average). EMA is a technical analysis indicator. Technical analyst or trader use EMA for analysis of scrip. Generally technical analyst of stock market use EMA 10 or EMA 26 to find buying and selling opportunities. EMA is quite simple compared to other indicators. 

EMA can be calculated using following formula.

EMA = {Close – EMA (previous day)} * multiplier + EMA (previous day)
Multiplier = (2 / (Time periods + 1))

We can use EMA indicator to find buying and selling opportunities in stock market. According to stock market strategy, if the value of EMA goes higher after EMA crossover then it is buying opportunity. If the value of EMA goes down after the EMA crossover then it is selling opportunity. 

 

Here from image, we can see after EMA crossover, EMA is going down so, it will create selling opportunity. We can see sell call from image. And when EMA goes higher after EMA crossover it creates buying opportunity. We can see buy call from image.

 

How to use Super Trend Crossover to find buying and selling opportunities

Before we stars with super trend crossover let me tell you something regarding what is Super trend? Super trend is an indicator and has many advantages over other indicators, super trend is also known as ATR (Average True Range). Super trend is a moving average of true range generally 14 days. Super trend was originally developed for true range but can also be apply to stocks or nifty.

ATR is not a directional indicator like RSI, it is a volatility indicator. It can be calculated using following formulas

Current Super trend = [(Prior Super trend x 13) + Current TR] / 14

Using super trend indicator we can find buying and selling opportunities in stock market. According super trend strategy if the value of ATR goes up by crossing the candle one can say it is pure selling opportunity. If the value of ATR goes down by crossing the candle one can say it is pure buying opportunity.

You can see selling opportunity from image when super trend is going high after crossing the candle. Similarly you can see buying opportunity when super trend goes down after crossing the candle.