- Before anyone enters the stock market, there are some points that one should know.
- This blog is all about discussing some of those main points.
SUPPORT AND RESISTANCE
What are support and resistance?
- This is a simple concept in technical analysis that says that the price of the stock will tend to move in the opposite direction when it hits a certain predetermined price point.
Support level
- This is a level at which the price of the stock does not fall any further.
- The price from here will likely bounce back and move up in the opposite direction.
- This is a level where the demand from the buyers is expected to be much higher than that of the sellers.
Resistance levels
- A resistance level is just the opposite of a support level.
- It is a price point or a ceiling where the stock price is not expected to rise any higher.
- This is a price point at which there are more sellers than buyers in the stock market for a particular stock.
Breakouts level
- The support and resistance levels will give the trader an idea about the price movement of a stock.
- However, it is also entirely possible that the stock price breaks through these levels.
- And when this will happen, a new support and resistance level will be created.
- That is, if the support level will be breached, the price of the stock will continue to fall until it will reach a new support level.
- If the resistance level is breached, the price of the stock will continue to rise until it will reach a new resistance level.
- The concept of support and resistance will help the traders to identify and exploit trends in the stock market.
- However, this will not mean that the stock will never go beyond a support or resistance level.
- A stock price can always go higher or lower and as a trader, you should just not rely solely on these levels to make the trades.
HORIZONTAL LINE
What is a horizontal line?
- A horizontal line will show the horizontal level in the chart.
- It can act as both the support and resistance levels.
- Moreover, with the use of the horizontal level or the line, you can also easily decide whether you should exit the trade or not.
- This is because the horizontal level in the chart will help you to figure out where a change is going to take place in the trend.
How to draw a horizontal line?
- First, you will need to spot a past price level where the price had difficulty breaking above or below.
- Then mark it with a horizontal line and adjust it so that you can get the highest number of touches.
- Once the price approaches this horizontal line again, there is a high chance that the price will retrace from that line.
TREND LINE
What is a trend line?
- A trend line is just like a horizontal line and the only difference is a trend line is in a sloping direction.
- There are 2 types of trend line.
They are as follows:
Image
How to draw a trend line?
- First, you will need to spot an angle either upwards or downwards where you can see the price that has taken support or had a resistance.
- Start drawing a line from the lowest candle.
- Adjust it so that you can get the highest number of touches.
Conclusion
So, these are the 3 main things that you should know before you enter the stock market.
Frequently Asked Questions
Q1) what are the 3 major stock markets?
Dow Jones, S&P 500, and NASDAQ composite.
Q2) what is the No. 1 rule in trading?
Always using a trading plan is the No. 1 rule in trading.
Q3) what is the golden rule of the stock?
Think long-term is the golden rule of the stock.
Q4) what is the golden rule of Warren Buffet?
Don’t lose money is the golden rule of Warren Buffet.
Q5) what is the full form of IPO?
Initial Public Offering is the full form of IPO.
About Us
Nifty Trading Academy is our academy where we teach you about the stock market as well as technical analysis. We also provide live trading sessions and upload blogs for the same.