The movement of stock prices and the stock market do not continue endlessly moving in one direction. Instead, it rises and falls. There is a point where the price of a stock tends to stop and reverse its direction at certain predetermined levels. In technical analysis, this is called the support and resistance. To increase your forecasting skills when trading stocks, it requires that you are able to perform some chart analysis from a given stock chart. Being able to forecast at which point your stock pick will reverse its price direction will allow you to buy or sell at the best time, maximizing you returns.
Support and resistance points will determine where a reversal may occur. A Support level is the price level at which a stock has difficulty falling below. When a stock has been declining and reaches a level where it hovers, then the support level has been reached. Normally this may occur as a result of buyers stepping in to buy the stock pushing the price up and away from the support line. Investors who are stock picking should look for signs where a support level has been reached and consider buying into the stock.
A resistance level is where the price or market finds it difficult to continue rising past a particular point. When there has been an uptrend and the stock price has been increasing, it will reach a point where it cannot break above a certain price level. The price will fluctuate up and down without breaking through a certain level.
This is where the resistance level has been reached. The resistance level normally occurs where the sellers step in to the stock. As they sell the stock, it starts to push the stock down. Investors watching for support and resistance levels will see this as a good time sell out before their stock pick starts a full decline, causing losses to their portfolio.
In the stock market today, there are many methods of technical analysis that can be used to identify where these support and resistance zones may occur. Technical analysts may use trend lines to help pinpoint more accurately where reversals may occur. This will help them to provide their clients with stock tips so that they can invest at the best possible time. To get a full understanding of how support and resistance works, you can get a stock market video that teaches the basics of technical analysis.