Support and Resistance Levels...

Thanks a lot guys for your support messages.

Will get straight to the point. In the last post, we saw how to identify the intra-day trend for the market. Now once we have identified the trend, next obvious question comes to the mind is which Strike Price you should trade on. I mean, let us say NIFTY today is around 5000 and you have identified Up trend. Now should you be buying something at 5000 Strike, 4900 or 5100 or what?

This is where our two beloved, most used friends, Support and Resistance enter. It is very unlikely that you have not heard of these terms even if you are very new to the market. Though these terms are associated with Technical Analysis and Charts, still, I will try to give some very basic idea here. Detailed posts on these will be made on my Equity Blog.

Support and Resistance, both these are levels which act as barriers for the NIFTY (or any index or stock for that matter) to move beyond. Obviously, Support is a level NIFTY finds tough to go below. Resistance is a level which NIFTY finds it difficult to cross on the up side. The simple explanation of these levels is something like this; Support is a level where lot of buyers think that it is a fair level to buy and they step in outnumbering the sellers and hence price does not go below it. Resistance is a level where lot of people think that profit should be booked and sellers exit in large number outnumbering the buyers and hence price finds it difficult to go beyond this point.

Once you have the chart of NIFTY or entity under consideration, there are many ways to ascertain these levels. Some of the most prevalent methods are;

• Horizontal Price Levels
• Trend Lines
• Moving Averages
• Fibonacci Retracement Levels
• and sometimes Round Numbers too

How badly I wish that I could write more on each of these but this is not the right place and time. As I said, I will write all (really a lot of stuff) on Technical Analysis on Equity Blog and it surely seems that I cannot delay it any further. Will start working on that too... stay tuned and keep them comments pouring in.

Few things before I close this post. First, nothing is forever... so Support and Resistance levels are broken and it happens more frequently than one thinks. Second, for every chart, there are many Supports and Resistances and they need to be chosen carefully. We will address that too.

Finally, what if you do not have any charting software and data. There are two ways to solve this... first being free charts available on many websites including NSE, Moneycontrol, etc. Second, if you are not at all interested in charting and belong to good old pre-charting classic school, we have a way to find these levels (which may not exactly match charts but will work for us nonetheless) by pure calculator means. Will write next post on that.

Have great support and zero resistance for Diwali Shopping.