Support and Resistance

Support and Resistance are the two common terms which are related to each and every stock chart. Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. And the opposite is true for the Resistance. It is the price level at which selling is thought to be strong enough to prevent the price from rising further. 

Below example shows how to create a support line on the chart.

Resistance Line can also form in the same manner with the straight line indicating the resistance for the stock price at certain level. Support Line and Resistance Line is not always straight as shown above, Support Line and Resistance Line can also form in incline and decline order. Below example shows how to create support Line if the stock is very bullish or bearish. 

Another final way in which Support or Resistance Line can be created is by using the 50 or 20 MA(Moving Average) line. Below example shows how Moving Average worked as a support and resistance for this stock. 

Many times Support Line starts acting as the Resistance Line and Resistance Line as Support Line. Once the stock price breaks and goes above the Resistance Line then that Resistance will start acting as a Support Line for the stock price and vice-verse as well.

Support and Resistance Lines are very common in understanding the charts and the price trend of the stock. It helps understand when is the right price to buy a stock is and when to sell.

Charting SideKick - RSI

One of the important asset in reading the stock chart is RSI. RSI stands for Relative Strength Index, it is used as a technical momentum indicator in an attempt to determine overbought and oversold condition of a stock. More detailed info on how RSI and how it’s calculated can be found here: Detailed RSI
 

Following is an example of how RSI looks like:-

 

RSI goes from 0 – 100 as seen above in the graph. Most of the graphs calculate RSI in 14 average period. It can the decreased or increased depending on how you are trying to invest. If you are trying to invest for short term you can change the 14 avg period to 7 and vice versa for long term.

If you see the RSI graph there is a line at 70 and a line at 30. Here if RSI goes above 70 it’s considered as overbought condition and if goes below 30 it represents oversold condition.

RSI can be very helpful in order to decide when the time to get in the stock is or when to get out. Below chart shows how RSI is helpful in making such decisions.

NUGT:-



When it goes above 70 doesn’t always mean that you should make the buy call. If the stock is very bullish it can stay there for long period of time. As shown in the below example. RSI stayed above 70 for long period of time. Since it was a very bullish time period for that stock you can consider the 70 line to 80 line in that case. During this time period, keep an eye for any bullish reversal candlestick pattern.


DWTI:-



The opposite of above applies to a very bearish stock as well. And can be seen in the below example.


UWTI:-




RSI is also helpful in deciding when the reversal patter is coming. It can indicate that bullish or bearish reversal is near time and depending on that we can make our decision of buying or selling the stock.


USO:-

 

As we learned from the above RSI holds very important data in the chart and can be very helpful in deciding the upcoming trend of the stock price. RSI alone is not completely reliable in predicting the stock price, but with the other assets like candlesticks and MACD it is definitely a great tool that can be very helpful at times.

Charting Demystified via OIL...

Charting is an integral part of the Stock Market. Even though people say that stock market cannot be predicted or determined, there are ways and techniques that have proved that wrong in the past decade or more. One of the famous technique to predict the stock prices is candlestick pattern. This technique is being used for more than a century and the candlestick stick pattern counts the human emotions and sentiments into account. 

A simple candlestick pattern stock graph look like below:-

The size of the candlestick represents and indicates different things that are going on in the market. I am not trying to explain in detail about how these candlesticks work, but trying to imply that by using suck techniques we can indeed determine the course of the stock prices. For people who are interested in learning these pattern, more information on candlesticks can be find here: Detailed analysis of candlesticks.

Let me give a recent example to prove my point that no matter what people think about the future of the stock price or how badly analysts try to prove there point. But it is the chart that makes it move up and down even if the news is big or small.

Recently all the analysts were skeptical about the OIL price going high in the near future. Some of them were even targeting the price to go below $30/barrel. But if one would have looked at the stock charts related to the OIL they could have easily determined that the chart was trying to indicate completely opposite.

Articles indicating that the OIL price will keep going DOWN.

• Crude Oil New Lows
• Iran sanctions oil prices opec
• Is $30 a barrel next?

In the midst of all these news the chart was telling completely opposite. Take a look at the below 2 charts till March 17th for USO and UWTI that tracks the OIL.

USO:-

UWTI:-

As described above the chart clearly showed that these stock prices related to the OIL are going to UP and the trend is about to change. Even though the news was completely opposite and analysts where expecting it to keep going low.

The next two images of the same stock demystifies and proves that the chart is always right !!!

USO:-

UWTI:-

This proves that the stock market is not a mystery and stock prices can be predicted up to certain percentages. These charting techniques have been in use for decades and many or almost most of the analysts use them in there day to day trading. Common people are usually unaware about these kind of techniques and have a wrong thought placed in there mind that making money in stock market is completely on LUCK !!!