Trade Stock Indices

Support & Resistance Zones

This represents a fundamental principle in stock index trading, referring to horizontal levels on a price chart that historically act as barriers, impeding an asset's price from advancing past a specific point in either direction.

Support

This specific level acts as a barrier preventing further downward movement in an asset's price, thus functioning as a floor by halting the market from breaching a certain lower boundary.

Example:

On the illustration explained and shown below you can see that stock trading price moved down until it hit a support

After the price reached this point, it bounced up a bit, and then kept going down until it reached the support again.

This process of hitting a level & bouncing back is called testing the support.

The more times a support level is tested & the price goes up, the stronger it becomes - the example shows that this level was tested three times without failing. At last, the market changed direction and started going the other way.

After identifying a specific level, traders utilize it to execute stock orders for purchasing indices, simultaneously placing a stop loss slightly below this mark.

Support level on a indices Chart - Index Support and Resistance Levels: Examples on Chart

In the example above, the market didn't go lower than this point. It's a level where the price can't drop.

These areas establish favorable points where a downward trend is likely to reverse, gain support, and start moving upward.

Buyers will push hard for indices here. It makes a solid entry for a buy trade. Set stops a few pips below.

This support is also used by short indices sellers as where they want to make money for their short sell indices trades done.

This is another reason why the trend will probably reverse or stay steady at this point: once sellers close their sell stock trades, the strength of the downward indices trend weakens, and after a steady period, the direction will likely change.

Resistance

This level blocks asset prices from rising. It acts as a ceiling, stopping the market from going up.

Example:

In the chart below, stock price climbs until it reaches resistance.

Once the price got to this point, it moved back a bit and then started rising again until it reached the same high level again.

The resistance holds and is tested five times without breaking/giving in.

More times a resistance level is tested the stronger the it is.

After determining this level, traders set their stock orders to sell there, while also placing a stop loss a few pips above this point.

Resistance levels on a indices Chart - Indices Support and Resistance Levels: Examples on Chart

In the example above, the market did not go above this level. This spot shows where the cost has trouble going higher.

These specific price levels frequently act as optimal reversal points where an asset's price, during an upward trend, is prone to encounter resistance and subsequently begin a decline in the opposing direction.

This shows that more people will want to sell indices at this price, making it a good spot to start a sell trade, with stop losses placed a few pips above this price level.

This level where the price struggles to go higher is also where buyers aim to set their goals and close their profitable buy orders. T

This setup adds to why the trend may turn or pause here. When buyers end their stock trades, upward push fades. Consolidation follows. Then the path often shifts down.

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