Support and resistance represent key turning points where the forces of Sellers (supply) and buyers (Demand) meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and buying. Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support. Support is the price level at which demand is thought to be strong enough to prevent the price from declining further and the logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support
In all markets the excessive supply will drive prices down, while demand will drive the markets up. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as bulls and bears slug it out for control. The market has a memory. When price falls to a new low and then rallies, buyers who missed out on the first trough will be inclined to buy if price returns to that level. Afraid of missing out for a second time, they may enter the market in sufficient numbers to take away from sellers. The result will be a rally, reinforcing perceptions that price is unlikely to fall further and creating a support level. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. A break of support and making new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition, buyers could not be tempted into buying until prices declined below support or below the previous low. Once support is broken, another support level will have to be established at a lower level
In all markets the excessive supply will drive prices down, while demand will drive the markets up. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as bulls and bears slug it out for control. The market has a memory. When price falls to a new low and then rallies, buyers who missed out on the first trough will be inclined to buy if price returns to that level. Afraid of missing out for a second time, they may enter the market in sufficient numbers to take away from sellers. The result will be a rally, reinforcing perceptions that price is unlikely to fall further and creating a support level. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. A break of support and making new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition, buyers could not be tempted into buying until prices declined below support or below the previous low. Once support is broken, another support level will have to be established at a lower level
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