One of the most innovative aspects to open or close positions in the equity markets is formed through support and resistance. But do we really know what these representative figures really mean? Well, before its correct explanation, it will be necessary to recognize that these eminently stock market concepts are a very effective instrument in the technical analysis of financial markets. To the point that they are attended by a good part of the small and medium investors to configure their portfolio of securities.
Within this general context, it can be said that support is a very reliable price level that is below its current price. His strategy is that the downward momentum can be slowed and therefore the price will rebound. In a more or less intense intensity depending on many stock market variables. Being in any case a starting point to start operations in the financial markets, even from more aggressive positions than normal in these cases.
It is a data that is considered very reliable and that is seldom invalidated and that is a response to the law of supply and demand of securities listed on international equity indices. With a margin of a few tenths of a euro so as not to be mistaken in your diagnosis of reality. Not surprisingly, it is a reference source that is widely followed by a large part of financial agents. Beyond other technical considerations and even from the point of view of its fundamentals.
Supports and resistors
A resistance, on the contrary, constitutes a movement contrary to that represented by the support. That is, it is a price above the current and that therefore the upward momentum that had developed up to now will be put to an end. However, the importance of this important movement resides in the fact that if it is exceeded at this relevant level, the potential for revaluation is more than important. Waited for by a good number of small and medium investors to start their operations in the equity markets. With movements that are generally very reliable and that are too complex for mistakes.
On the other hand, a sample of this strength in these technical indicators is derived from the following factor that we are going to explain below. Because in effect, a support or resistance acquires a greater strength the more times it has been tested without the price having fallen or risen from that level in question. This is one of the main reasons for its reliability to be very powerful and it serves to add or eliminate stocks to the investment portfolio developed up to now.
Duration of this technical movement
One of the most important aspects of these important figures in the stock market stems from the fact that as support or resistance stay longer current is considered that their reaction will be much more intense. In other words, it will have a greater appreciation potential than in other scenarios with similar characteristics. Where the best advice will be to buy or sell the securities to make profitable or protect their positions in the equity markets. Above other more technical considerations in their more strategic investment approaches.
In any case, it should also be noted from this moment on that this class of figures so common in any technical analysis are not insensitive to their corresponding duration over time. In the sense that a resistance or support that has lasted longer has a much better chance of emerging victorious from this very special stake. So what will determine the momentum that it may have, one way or the other. So that if you are, you can make a decision with much more arguments than up to now. It is something that you should value from now on and this is a factor that must be emphasized.
Prices at closing levels
Another aspect that should be assessed from now on is that both the supports and resistances have a strong emotional component from the stock market point of view. Regarding the fact that the price of the shares of the listed securities must close the trading sessions below or above these levels. With the objective so that these figures of a stock market nature can be validated before the positions and decisions of small and medium investors.
On the other hand, it should not be forgotten that these figures are used with some frequency to perform trading operations. That is to say, with very little variation between their purchases and sales and that require more learning to adjust prices in a correct and efficient way. Not surprisingly, its biggest problem lies in the fact that these levels can become a false alarm and can create a very dangerous situation for the interests of small and medium investors. Where they can lose a lot of money in this kind of movements in the equity markets.
How to operate with these figures?
Of course, the operation with the supports and resistances are not excessively complex and are suitable for any profile of investors. Because it is based on waiting for the stock price reach those levels to carry out an investment strategy and that can be many and of diverse nature, as you will be able to verify from these precise moments. One of the most typical examples in resistance operations is waiting for these important levels to be exceeded in order to carry out purchases and that these can even be aggressive or accumulated.
On the contrary, if for any circumstance this scenario does not occur, it may be the perfect excuse to undo positions in value. Among other reasons because the correction in their prices can be very marked from then on. In any case, it is not a scenario to open positions in the stock market because you have all the ballots to leave many euros on the road. It will not be very strange that the original supports are sought to stop the falls in its price. Beyond other considerations of technical analysis and maybe even from a fundamental point of view.
Trade at support levels
The mechanics in the supports are practically the same as in the resistances, except for some and slight differences. In this sense, it is usual that these levels in the precise ones exercise containment so that there are no more depreciations in the value. But if for any circumstance this were not the case, there will be no remedy but to close the positions because the falls from this moment on can be very deep in terms of intensity. If, on the contrary, they stop at these levels, it can be the point from which a new bullish phase in financial assets, of greater or lesser intensity.
In these cases, a margin must be given in the price that the supports mark with the main objective of not making a mistake in the diagnosis and that can be a great setback for the strategist employed in our investment. At least you have to give a small margin of a few cents of a euro in the conformation of prices. So that in this way, there are no errors in the calculations to interpret these important figures in the stock market. On the other hand, you should know that these stock market figures are very easy to interpret and through an updated graph they are easily detectable for any investment profile.
Easy to interpret
If you follow some of these tips, there is no doubt that you will be in perfect conditions to optimize operations in the equity markets. Beyond the strategy that you are going to use on each occasion. In any case, for sure you will adjust the prices much better input and output on selected financial assets. This is a system that is widely followed by all kinds of small and medium investors, from those who have less experience in this kind of operations to those who provide more learning. Without exclusions of any kind since what it is about after all is to make the capital profitable with the greatest possible success. No more no less.
Finally, consider is that this is one of the easiest systems that you have at the moment to operate with any financial market. You can do it from the beginning with no type of precautions since it does not have any adverse effect on your personal interests in your relationships with the always complicated world of money. You will only have to be very rigorous with the application of the filters to carry it out correctly and above all efficiently. Not surprisingly, this should be one of your most relevant objectives when developing all kinds of operations in the equity markets.