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SUPPORT AND RESISTANCE LINES

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Support Level is a price level at which there is sufficient demand for buying a security so that the downward trend can be halted and such demand force may even reverse the trend.

Resistance Level is a price level with a great supply of a security available to cause a halt in an upward trend and such supply force may even reverse the trend.

Volume is often considered to be a useful indicator to confirm the price direction. When the security price jump below or rise above the Support Level, together with a relatively large volume support. Then it may be a confirming indicator for the new direction. This also applies to the Resistance Level.

Usually, after a resistance level is penetrated, it becomes a support level. On the other hand, when a support level is penetrated, it often becomes a resistance level.

In practice, the Support Lines are drawn by joining the lowest points of the observed trend whereas the Resistance Lines are drawn by joining the highest points of the observed trend. The time horizon for these trend lines is just up to your investment strategies (short-term or long-term).

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(Support Line for HSBC)

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(Support and Resistance Line for Hang Seng Index)

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In a long-term perspective, the above Chart shows that the price level in around 12,000pts is a strong resistance level for the period of around early 1994 to the 3rd Quarter of 1996. Thereafter, this resistance level became the support level for the stock market until the 3rd Quarter of 1997 when the financial turmoil occurred at that time. The 12,000pts level became the resistance level for the stock market again. It takes around one and a half year for the market to recover this lost ground and stayed firm above 12,000pts again.

You can plot your favorite trend line(s) in our Java Charting System in the following ways:

  1. Click for an appropriate button (i.e. "Line Drawing") shown on the bottom of the left hand side on our Charting System;

  2. Left click your mouse to set for your starting point as indicated by the cursor;

  3. Release the left button when you find the ending point on the screen;

  4. If you wish to clear such ruler, just simply right click your mouse.