Stock market for beginners, who want to trade, is a good opportunity. However, a beginner trader makes a prevalent mistake of not studying the online stock trading market and its terminologies first.
As a result, it either demotivates them or makes them lose a big chunk.
Support and Resistance levels are such vital tools, about which most traders are not aware of. It helps to examine the supply and demand situation for an asset.
More demand will create the buzz, and the price of the asset will increase and vice versa. You can read about the support and resistance level here.
Therefore, it is essential to find these levels and act accordingly. Here in this article, we would briefly discuss some methods to identify potential support and resistance level.
5 Popular Ways to Identify Support and Resistance Levels
The foremost way to find the support and resistance level of any asset’s price is Fibonacci retracement levels. It is the most widely used and reliable way to find the levels, and the most common levels are 23.6%, 38.20%, and 61.80%. Though it is a bit complex method, you can learn about it in detail here.
Congested Price Chart
If a stock is trading on a chart around a single price range, then it is a crowded price area. It is one of our favourite methods to find support and resistance level. It implies that the users are interested in that price range, and thus, a trader can plot the levels accordingly.
A gap is an area on a price chart upon which the stock did not trade. The gaps are excellent potential support and resistance levels because of the vacuum created on the map. This space would most probably fill because there would be order, by some traders, on that gap price level.
It is the easiest method on our list. A trader needs to identify the extreme high and low points. For instance, in an uptrend, every higher high is a resistance level, and similarly, every higher low is a support level.
A beginner trader can observe the chart and find the points.
Last but not least, the trading volume of a financial instrument is a good indicator of support and resistance levels. A trader should find past high trading volume price bars and use them to see further levels. The reason being – High trading volume shows the trust of the market on a price level and these S & R level rely entirely on market interest.
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Both support and resistance levels are crucial technical analysis tools used by experienced traders. In their words, the support level is the floor of a price chart and resistance level is the roof.
In other words, the price would, most probably, lie in between these two points.
Therefore, if a trader can predict the future support and resistance levels, he can act accordingly and make a good profit.
However, above all this, a trader should also keep in mind that these levels denote nothing but stock trading markets’ interest. Thus, thinking with their point of view is the best way!