Five types of major support and resistance levels
Updated
Want to buy the bottom and sell the top? Want to predict major turning points in a security's price? Want to avoid buying too early or selling too late? Then you need to understand support and resistance levels!
I know a lot of people who mostly trade breakouts. That can be a very successful strategy, and I've used it myself to good effect. But if you buy a breakout after it happens, you pay a "breakout premium"-- especially if you're buying option calls or puts. You'll get a much better price on options if you buy them *before* a breakout or *before* a major change in momentum. How do you do that? Know your support and resistance levels!
Once you know how to identify the different types of support and resistance, you can look to see where several different types of support or resistance coincide. Those will be key price points at which different types of investors who rely on different types of indicators will all buy or sell at the same time.
I know a lot of people who mostly trade breakouts. That can be a very successful strategy, and I've used it myself to good effect. But if you buy a breakout after it happens, you pay a "breakout premium"-- especially if you're buying option calls or puts. You'll get a much better price on options if you buy them *before* a breakout or *before* a major change in momentum. How do you do that? Know your support and resistance levels!
Once you know how to identify the different types of support and resistance, you can look to see where several different types of support or resistance coincide. Those will be key price points at which different types of investors who rely on different types of indicators will all buy or sell at the same time.
Note
I can't tell you how many times I've successfully picked a local top or bottom-- in a few cases, to the penny-- because I knew the locations of support and resistance levels!
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