Battle between Bulls and Bears

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One of the interesting phenomena of stock markets that tend to be catchy is the movement of stock prices at the blink of eyes. At one instant, you may find your portfolio in “green’ while in next couple of minutes it may turn “red”. This battle between bulls and bears may prove devastating for the traders if they do not exercise caution in tracking their stocks portfolio. While making a buy/sell decision of a specific stock, if you have ever got a chance to see the stock chart, there is a lesser probability that you haven’t come across “support” and “resistance” levels of the stock. What are support and resistance levels and how are these significant for stocks and for entire index in general is what we would see here!!

Almost every stock has both a level of support and a level of resistance and usually it trades in this range bouncing between these levels. In very simpler words, Support level is the price where a falling stock finds its support and will not go down beyond this. Similarly, resistance level is the price level which a rising stocks finds difficult to overcome or cross. The definition here implicitly indicates its importance in buy/sell decision.  Let’s understand in detail how??

 

For buyers; consider a share continuously moving down over a period of time and you find the fall in the price as a buying opportunity. To decide your entry price, support level is there to help you. Since the stock is unlikely to go below this level, you can opt to buy at this level without fearing any risk of further downfall and aiming to take an opportunity to buy.

For sellers; consider a share continuously moving up and your aim is to have maximum profit margin and take a profitable exit. Thus to decide upon an exit price, Resistance level is what you should look for. Since the stock is more likely to “bounce” off this level rather than breaking through it, you can sell your stock for better returns.

In generic terms, for a stock trading between support and resistance levels, the strategy of a trader should to buy a stock at support and sell at resistance. For traders involved in short sellingshort at resistance and then cover the short at support.

As a part of technical analysis there is no denying the fact that support and resistance can help you benchmark your decisions but it is very important not to assume that these levels will not breach at all.

 

It is likely that a declining stock breaches a support level and continues dropping until it finds another support level. This is called breakdown and usually occurs when number of Buyers willing to step in to buy exceeds the supply available from sellers willing to sell. On the similar note, a rising stock may also breach the resistance level and continue rising till it finds another resistance level.  This occurs when the supply available from sellers willing to sell is greater then the demand from buyers willing to step in to buy. This is as simple as the concept of “demand and supply”. But next time you make a buy/sell decision, do take few minutes to have a look at these levels to enjoy its crunch.

All the best…

Renuka Kinger

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21 Responses to “Battle between Bulls and Bears”

  1. Ankit says:

    Why does a declining stock breaches the support level when the buyers increases. This would in-turn bring more increase in the number of buyers? What is the main reason behind the breakdown – Why & What for does it occur ? And how does it impact on the stock or the share market?

  2. ankit says:

    hiiiiiiii its becoz if d company doesnot hav enough goods to sell the people will loose faith in dat company and finally leading to looses

  3. Elango.M says:

    Dear Friends, I am Elango.M from Madurai, please send me the updates for Intardy trading, and some tips..

    Regards,
    Elango.M

  4. ankit says:

    Why does a declining stock breaches the support level when the buyers increases. This would in-turn bring more increase in the number of buyers? What is the main reason behind the breakdown – Why & What for does it occur ? And how does it impact on the stock or the share market?

  5. Kamali says:

    Could any body explain ankit question? Why does a declining stock breaches the support level when the buyers increases. This would in-turn bring more increase in the number of buyers? What is the main reason behind the breakdown – Why & What for does it occur ? And how does it impact on the stock or the share market?

  6. Justo says:

    How do we know the support level and the resistance level ?
    I have never seen this before ..

  7. smita says:

    hw 2 determine support nd resistance level?

  8. admin says:

    #Ankit Reply ::

    Lets understand the scenario in terms of 3 stages:

    One – when stock is in declining
    Two- when it has found a new support level
    Three – it starts rising again after having touched a new support level.

    During first stage there is selling pressure in the market due to which stock keeps declining continuously. At this stage buyers don’t exceed as inferred in the questions above but there are more number of sellers in the market.

    Second stage is of breakdown. Why this breakdown occurs is something related to either fall in stock market as whole or due to specific stock related reasons.

    After breakdown has reached; at this point investor will take it as a buying opportunity. At this stage number of buyers start rising and create more and more demand in the market.

    To understand this better lets take an example. Consider an unexpected fall in the stock price like what happened in case of Satyam’s stock. The stock kept falling continuously breaking its support level as there was more and more selling in the market due to news of fraud by Ramalingam Raju. This lead to breakdown and it reached a new support level and then started rising after that when things became normal.

    Regards,
    Renuka

  9. ANUPAMA R says:

    how do the share prices changing drastically within fraction of seconds

  10. satish says:

    hi friends
    i want to take full knowledge of share market. guide me.

  11. Kamalesh Guha says:

    Concept of demand & suuply rules that as demand increases, price too increases and vice- versa when the supply is constant. And on the other hand if the supply increases, price also decreases and vice-versa when demand is constant. Could you please explain how do you come at such a conclusion for stocks going beyond the support level and rising up the resistance level? Are these two levels variable?
    Regards,
    Kamalesh

  12. Rajesh says:

    Friends, the last para there is a simple typo. Please do not get confused. Using the simple logic of supply and demand, the correction in the last para will be as follows –

    “… It is likely that a declining stock breaches a support level and continues dropping until it finds another support level. This is called breakdown and usually occurs when number of Sellers willing to sell exceeds the number of Buyers willing to step in and buy.
    On the similar note, a rising stock may also breach the resistance level and continue rising till it finds another resistance level. This occurs when the supply available from sellers willing to sell is lesser than the demand from buyers willing to step in to buy. ”

    Meanwhile, thanks a lot for the article Renuka. It did help me a lot.

  13. chandra says:

    I think the description in the last para should be other way.

  14. Prasad says:

    Hi frnds,
    i wanna know how to find out support and resistance in trading in the market……..
    Looking for a reply on the same ASAP

  15. Manish says:

    Thanks Renuka…. Your website is very useful… I’m just learning all the terminology one by one and able to do good research… Once I’m done will try to invest some money in shares… Will take my chance… Best of luck and I hope you are making good money in shares!!!!

  16. Swati G. says:

    Short term investment in stock market will help to earn high returns

  17. rizwan says:

    hello friends gaining full knowlege of share market is impossible because no one can exactly predicit what will happen in stock market….

    so make your own analysis …..refer moneycontrol.com, vfmdirect.com ( to have technical analysis of support and resistence)

  18. sagar says:

    thank you for your valuable information. I want to know the information about stock market and the raising and falling of share values with in the periods. Your website is very helpful for me to know the basic knowledge of stock market. Thank you once again.

  19. pallavi says:

    thanks for very good info..specially support ,resistance and things about declining stock

  20. rp says:

    Where do we get the support and resistence level information on regular basis.

  21. smriti says:

    hi friends….i wanna say thanks to all of u

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