With any share, there is a price above which nobody wants to buy, and there is a price below which nobody wants to sell. They are known, respectively, as the potential resistance and the potential support price. They are not fixed, but constantly change as in the example below, when the price of the share hits 400p, the demand from buyers is zero, although the supply (i.e. number of people willing to sell) is high.
Equally, when the price falls to 150p, there are plenty of buyers, but supply has fallen to zero as no-one wants to sell at that price.
Resistance and support levels are interesting to technical analysts because although they certainly do change they can also be fairly constant, as the chart below of Prudential Corporation's share price shows.
Click here for a full size graph.
You can see that every time the price approaches 220p, it rebounds and increases again. It has found a support level in the market at 220p because there are no sellers below that price.
Click here for the full size graph.
In this case a resistance level has been established at around 360p. Every time the shares get to that level, they fall back again. At this price and above, no-one is willing to buy the shares.
Book offers!
|
|
Binary Options
Hamish Raw |
| Our price: £42.90
Normally: £65.00 |
|
|
Manias, Panics and Crashes: A History of Financial Crises
Charles P. Kindleberger , Robert Z. Aliber |
| Our price: £20.69
Normally: £22.99 |
|
Handbook of Empirical Corporate Finance: SET
B. Espen Eckbo |
| Our price: £124.00
Normally: £155.00 |
){kind=link}
){kind=link}