What is Support?
Support can be defined as a level from which a stock tends to bounce back. Its a level which indicates that the stock is likely to witness some fresh buying, and some upside is possible in the next coming days. Its is an awareness of patterns associated with support zones (areas usually associated with previous trading ranges, in which prices find support against further decline) enables investors to more accurately define the direction of significant market trends. Such patterns also suggest areas in which price reversals are likely to take place.
Stock never advance in a straight line, they tend to go up in a series of advance’s, flat or retracement period, further advance, another flat or retracement period, and so forth.
Identifying the support level of stock is merely done by looking at the last 3-4 low’s of the stock from which it bounced back, but it takes some practice and is somewhat subjective because there are points that can be considered weak support or resistance and strong support or resistance. Supports are areas where prices tend to consolidate and reverse. Support provides support to prices that are declining.
Determining the strength of the Support levels also plays an important, this is done by counting how many times did the stock price hold prices from dipping further, in other words counting the number of times the stock bounced back from its support levels, The more times it appreciated, the stronger and more significant the support point.
Once it made a close above 49-50, it made a high of 62, this indicates the importance of a support levels, but if the stock would have gone below is support level of 48, it could easily see 35 levels. A trader should only make a buy decision once he witnesses some buying interest in the stock.
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