Business, Legal & Accounting Glossary
The area near the top of a trading range in the price movement of a security or market where supply and demand are equally balanced and the price begins to retrace back to its lows or the zone of support. Traders will follow the price movement and volume indicators to determine when a potential price breakout will occur.
The upper range of a stock’s price that indicates price resistance is known as the zone of resistance, while the lower range is known as the zone of support. Investors can purchase and sell shares in order to optimise their short-term gains by understanding the price zones of a stock. As a result, it might be compared to the zone of support.
In technical analysis, the zone of resistance is a crucial concept. Technical analysts watch out for signals that a stock’s price is breaking through barriers and forming new support and resistance levels.
Most day traders purchase and sell on the assumption that support and resistance zones will hold for a long time. This rationale is based on simple supply and demand principles. As more shares are bought at the lower support level, the price begins to rise until it reaches the zone of resistance, at which point selling pulls the price back down.
External events can alter a stock’s zone of resistance and support levels, which is why skilled technical traders use many charts when attempting to predict future price changes, as is the case with all technical analysis. A move through the resistance zone might be validated on a chart as a potential breakout chance for taking a long position in a company that has previously only traded between the support and resistance levels.
This breakout is frequently triggered by fundamental improvements in the company’s performance, such as the introduction of a new product or news of market share gains and increased cash on hand.
Technical analysts use support and resistance zones to analyse past prices and forecast future market movements. Simple technical analysis techniques, such as horizontal lines or up/down trendlines, or more complicated indicators, such as Fibonacci retracements, can be used to draw these zones. As traders and investors recall the past, react to changing conditions, and anticipate future market movement, market psychology plays a significant impact in the price movement of a specific asset.
Trend lines can help you get a better idea of how stocks have moved over time. There will be occasions during any substantial price move up or down when plateaus are achieved and the stock price wanders sideways. In a bull market, when investors are looking to lock in gains across multiple equities, a plateau can develop within an overall price trend upwards. The danger is that they will miss a big continued upward trend, believing the plateau to be the start of yet another downward trend when, in fact, it is only a stop on the way to new highs.
Investors can use trend lines to observe longer-term trends in a chart and not rely their approach solely on short-term swings.
Several indicators are used by technical investors to assist them make informed judgments. Traders use moving averages (MAs), candlestick analysis, and daily stock volume, in addition to the zone of resistance, to predict the next swings up or down.
Traders watch for confirmation in a chart to determine whether a breakout is taking place and new resistance and support levels are being established. Volume is a good predictor of investor interest in a company, and as volume rises, so does the possibility of a new high or low.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Zone Of Resistance are sourced/syndicated and enhanced from:
This glossary post was last updated: 6th January, 2022 | 0 Views.