Support and Resistance

I could not follow up the earlier Support and Resistance Post where we discussed how can we ascertain these levels without charts. At the end of that post, I mentioned that we will see how these levels compare to the Chart Levels. A week of two has gone by so let us repeat the calculations for the last week.

Week (Oct 31 - Nov 04)

Highest 5360.25 Oct 31

Lowest 5201.85 Nov 03

Close 5284.20

Avg 5282.1

Support        5203.95

Resistance   5362.35

Now let us see how does it compare with the charts. Following is the NIFTY chart with Support and Resistance Levels marked on it with the help of trend lines - Channel as well as Horizontal support line.

As you will see, Resistance of 5360 is as close as we can get to the calculated value but Supports of 4700 or worse 4530 are far off. Let us see if some other method helps.

In the chart above, 21 Day and 200 Day Exponential Moving Averages have been plotted. I have made a note to make a post on Moving Averages... will do that on Equity Blog. These two are probably the most popular EMAs used across the board. 21d EMA here is close to 5162 and 200d EMA is around 5336... not far from our calculated values.

Well, it is possible to arrange the charts in such a way that we will get the Support and Resistance values close to our calculated levels by playing around chart type (daily, weekly, etc) or by taking various EMAs or SMAs (Simple Moving Averages) like 20d, 50d, 100d, etc or by drawing various trend lines as per our convenience. But that's not the idea... Calculated levels can and will sometime differ from Chart Levels and sometimes they will be matching ditto. However as I mentioned there are various ways to determine these levels on a chart and different traders will have these values different from each other.

Idea is to find a combination that works for you and then trade by it. Next post tomorrow.