V. 19:11 (86-88): Working Money: Resistance And Support by Dennis D. Peterson

V. 19:11 (86-88): Working Money: Resistance And Support by Dennis D. Peterson
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Working Money: Resistance And Support by Dennis D. Peterson

Do you want to profit in the market? Then you need to understand resistance and support levels.

A resistance level is the ceiling price area that a stock repeatedly tries to break through above, but for reasons that will become clearer later, temporarily cannot. A support level is the counterpart to resistance, an area that a stock repeatedly tries to go below but temporarily cannot. After repeated attempts, the price will often finally rise above the resistance level or go below the support level.

The most common resistance and support levels come from traders wanting to make a profit or minimize a loss. Figure 1 is an idealized chart of resistance and support levels. At price level A, the stock price hits a ceiling (resistance), preventing it from going higher. Selling occurs at level A; traders are taking a profit. Price then retreats until it hits level B (support), where buying occurs. This occurs because at that level, traders believe the stock price is too low. At that point, traders anticipate that a profit can be made.

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