What is Support and Resistance
Support and
Resistance Basics
9/19/07
I'd like to take a moment to share with our readers something that is
somewhat elemental to trading but some folks still do not use as part of
their daily analysis. Support and resistance, no matter how boring or
elementary it may seem or sound, is still an integral part of a solid
technical trading plan.
Back to the Basics
If you've been around any kind of equities trading at all, I'm sure you've
heard the words "support and resistance" thrown around. But what do these
technical analysis terms mean to emini traders?
In it's most basic form, support is the level at which buyers of a
particular equity or underlying instrument overtakes those who are selling
that particular instrument. There are different "levels", or severities of
this condition that take place. Resistance is just the opposite - sellers of
a particular equity or underlying instrument overtake, or outnumber, buyers.
If a level of support or resistance is tested many times within a particular
span, it is likely that that level will become firm. This means that traders
can expect with some degree of certainty that the emini will not break
through the level. Depending on how you trade as it pertains to a trend
occurring, you may elect to wait and watch to see if the price of the emini
will break through and cause a breakout, in which case support and
resistance will be recalculated.
I usually try to wait until a firm level of support or resistance takes
place and look for a countertrend entry potential with eminis before looking
for other parameters that would confirm a buy or sell signal. As with any
kind of technical analysis parameter, the more you see confirming a move,
the more likely it is that that move will happen.