You must be already familiar with the S1,S2,R1,R2 notations if you have been trading for a while. However, are they of any use? Meaning, do they really work and help you with your trading activity. Are these numbers the real support resistance prices for the respective stock? We will try to answer this and many more questions in this article.
What is a Stock Support?
Stock support price is a price where Stock tends to stabilize if it is moving down swiftly. It is sort of a cushion where the the stock feels comfortable. Usually the stock moves back up from this price, unless it is in an extreme downtrend or may even be breaking down.
What is Stock Resistance?
If a stock hits a price and cannot move past it, that price is usually termed as a Stock Resistance Price. If this happens more often, then the Resistance is termed as extremely strong. You may have 2 outcomes to this.
What are S1,S2,R1,R2?
S1,S2,R2,R2 are just mere Pivot points used for intraday trading. These are derived from the immediate previous trading day’s stock prices. S1,S2 are the immediate support levels for the stock whereas R2, R2 are the immediate resistance levels. Some myths.
Very similar to this, if you are using One day numbers to get support/resistance levels for another day, you are better off deciding if it is worth it.
So What exactly is Support/Resistance and how do you Figure it out?
I would like to point out at this time to DLN’s website using an example here, Reliance Communications. Take a look at Reliance Chart. By the way, before we proceed any further let me tell you that the Support/Resistance Charts that you find on DLNGroup.com is NOT available anywhere else in the world(as of this writing).
Let me give you an example. In this example, Train is referred to Rcom stock price and stations, the actual price.
Let us say you are traveling from Mumbai(437) to Delhi(750) by Train. The train stops at lots of small stations and some major stops. Let us say it stops at Nagpur(482), Bhopal(530), Gwalior(550), Agra(570) and Delhi(750). In between you may have smaller stops say, A(453),B(500),C(591).
The reason i used this analogy is because it clarifies the doubts of what support/resistance levels are in an easy to understand fashion. Since major stations have the most population, business and money, the train stops at these stations the longest. Meaning, Strong support or resistance as the case may be.
The amount of money poured in around these support/resistance prices is also huge. Why? Because the number of people boarding this train(buy rcom) is huge(because of the population).
When it comes to boarding train at A, B or C stations, the number of people would be a few handful. So is the case with the stock support/resistance as well.
Between May and July 07, Rcom established these strong support/resistance prices. And as you can see later in the year, Aug 07, the stock took a beating. But, wait, do you see the Volume spikes to the largest between Apr-Aug? This is because traders realized that the stock is a great buy as it is at a very Strong Support level.
Similarly, once the stock crossed the last known strong resistance level, there was a stock breakout and volumes exploded again.
So to sum up. A stock that has strong Support is denoted by a Dark Pinkish line and Strong Resistance with a Dark Blue line. These prices are tested every now and then when the stock is in no mans land. The strength of these support/resistance lines is also mentioned in the form of numbers in the left pane under “Resistance and Support” Table.
Trade only using real support/resistance lines and not the S1,S2,R1,R2’s. If you are a day-trader, you may want to use these along with the real support/resistance prices.
What is a Stock Support?
Stock support price is a price where Stock tends to stabilize if it is moving down swiftly. It is sort of a cushion where the the stock feels comfortable. Usually the stock moves back up from this price, unless it is in an extreme downtrend or may even be breaking down.
What is Stock Resistance?
If a stock hits a price and cannot move past it, that price is usually termed as a Stock Resistance Price. If this happens more often, then the Resistance is termed as extremely strong. You may have 2 outcomes to this.
* Either stock Breaks out of this resistance price.
* Or stock honors the resistance price as traders get nervous and move the stock down again.
What are S1,S2,R1,R2?
S1,S2,R2,R2 are just mere Pivot points used for intraday trading. These are derived from the immediate previous trading day’s stock prices. S1,S2 are the immediate support levels for the stock whereas R2, R2 are the immediate resistance levels. Some myths.
* How reliable are these? These do work for the most part, but only for intraday trading purposes. However it depends on the individual stock behavior as to whether it really follows these numbers.
* Are they useful? Let me give you an example. There are two cricketers. A and B. A has over 2 years of experience and B has played only 1 game. B scored a century in his first game. A has been consistently playing well and averages over 45/match. Now, if someone were to hypothetically place bets on which player will play well in the next match, chances are that you will select A. Why? Because you know that A has a proven track record that can be used as a basis to predict future performances.
Very similar to this, if you are using One day numbers to get support/resistance levels for another day, you are better off deciding if it is worth it.
So What exactly is Support/Resistance and how do you Figure it out?
I would like to point out at this time to DLN’s website using an example here, Reliance Communications. Take a look at Reliance Chart. By the way, before we proceed any further let me tell you that the Support/Resistance Charts that you find on DLNGroup.com is NOT available anywhere else in the world(as of this writing).
Let me give you an example. In this example, Train is referred to Rcom stock price and stations, the actual price.
Let us say you are traveling from Mumbai(437) to Delhi(750) by Train. The train stops at lots of small stations and some major stops. Let us say it stops at Nagpur(482), Bhopal(530), Gwalior(550), Agra(570) and Delhi(750). In between you may have smaller stops say, A(453),B(500),C(591).
The reason i used this analogy is because it clarifies the doubts of what support/resistance levels are in an easy to understand fashion. Since major stations have the most population, business and money, the train stops at these stations the longest. Meaning, Strong support or resistance as the case may be.
The amount of money poured in around these support/resistance prices is also huge. Why? Because the number of people boarding this train(buy rcom) is huge(because of the population).
When it comes to boarding train at A, B or C stations, the number of people would be a few handful. So is the case with the stock support/resistance as well.
Between May and July 07, Rcom established these strong support/resistance prices. And as you can see later in the year, Aug 07, the stock took a beating. But, wait, do you see the Volume spikes to the largest between Apr-Aug? This is because traders realized that the stock is a great buy as it is at a very Strong Support level.
Similarly, once the stock crossed the last known strong resistance level, there was a stock breakout and volumes exploded again.
So to sum up. A stock that has strong Support is denoted by a Dark Pinkish line and Strong Resistance with a Dark Blue line. These prices are tested every now and then when the stock is in no mans land. The strength of these support/resistance lines is also mentioned in the form of numbers in the left pane under “Resistance and Support” Table.
Trade only using real support/resistance lines and not the S1,S2,R1,R2’s. If you are a day-trader, you may want to use these along with the real support/resistance prices.
