Support And Resistance

Supply and demand create price movement. Specifically, should supply exceed demand, price declines; conversely should demand exceed supply, price advances. This is the basic economic theory accepted by all traders that creates the market.

• Supply (resistance): A price level in a market where willing supply exceeds willing demand.
• Demand (support): A price level in a market where willing demand exceeds willing supply.

In order to illustrate this we use some basic tools; harizontal line, trendline or boxes. The difficulty in constructing support and resistance becomes  apparent when choosing the specific points to select and connect creating the line. One thing to remember is that support and resistance levels are not exact numbers.

Often times you will see a support or resistance level that appears broken, but soon after find out that the market was just testing it. With candlestick charts, these tests of support and resistance are usually represented by the candlestick shadows.

As in many aspects of trading, human nature tends to interfere greatly in the proper construction of support and resistance level. Personally, i'm prefer to draw support and resistance as a zone..