Support and Resistance Levels with Bar Charts

Support levels indicate the price at which most traders feel that prices will move higher. There is sufficient demand for a security to cause a halt in a downward trend and turn the trend up. You can spot support levels on the bar charts by looking for a sequence of daily lows that fluctuate only slightly along a horizontal line. When a support level is penetrated (the price drops below the support level) it often becomes a resistance level; this is because traders want to limit their losses and will sell later, when prices approach the former level.

Like support levels, resistance levels are horizontal lines on the bar chart.

They mark the upper level for trading, or a price at which sellers typically outnumber buyers. When resistance levels are broken, the price moves above the resistance level, and often does so decisively. See Figure below.

[caption id="attachment_13089" align="aligncenter" width="550"]Bar Chart with Support and Resistance Lines Bar Chart with Support and Resistance Lines[/caption]

Many traders find lines of support and resistance useful in determining the placement of stop-loss and take-profit limit orders.

By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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