Chapter-6 | How to Identify Support and Resistance in Stock Market

How to identify Support and Resistance in Stock market

Once we have learnt the concept of trends in previous chapter, the next most important concept in technical analysis is Support and Resistance.

The stock market is a head to head battle between the Bulls (the buyers) and the Bears (the sellers). The Bulls try to take the stock prices higher and the bears do the opposite taking the prices lower. Final direction in which the stock price is moving reveals who is winning this head to head battle.


The price at which a trade takes place is the price at which a bull and bear agree to do a trade. It represents the agreement of their expectations. The bulls believe prices will move higher and the bears think prices will move lower.

Support levels indicates the price at which there is a high demand which means it is the price where majority of traders and investors believe that prices will move higher, and resistance levels indicates the price at which there is a high supply which means it is the price where majority of traders and investors believe that prices will move lower.

Let’s look at that chart below where we can see that as soon as the price reaches 32 the bears take full control and push the prices down, this point is called resistance whereas when the prices reaches near 30 the Bulls take Full control and push the prices up, this point is called support.

Support and Resistance Technical Analysis Stock Market

Let us understand support and resistance in detail :

1) The Support : As we have already discussed that a support is a barrier on the lower side which prevents the prices of the stock to fall further that is as soon as the price reaches to a particular point a lot of demand generates by the buyers and the price of the stock bounces back.

Below is the chart of SBI bank, as we can see from the chart that as soon as the price reaches to 245 a lot of demand gets generated and the price of the stock bounces back which means 245 is acting as a very strong support and therefore this point can be considered as a trigger points for the buyers.

Support and Resistance Technical Analysis Stock Market

Getting an idea of support level can help investors and traders in following ways :

a) The buyer would know that he has to place a stop loss near 245 and ideally it should be placed 1 to 2 points below the support level if the price falls below 245 then he has to exit his long position.

b) The person who has taken a short position can book his profits at the support level because the chances are more that the price will bounce back from the 245 level.

2. The Resistance : The resistance is a barrier on the upper side which prevents the prices of the stock to rise further that is as soon as the price reaches to a particular point a lot of supply gets generated mostly by the Sellers and the price of the stock falls back.

Below is the chart of ITC, as we can see from the chart that as soon as the price reaches to 263 a lot of supply pressure gets generated and the price of the stock falls back lower which means 263 is acting as a very strong resistance and therefore this point can be considered as a point to sell the stock holdings.

Support and Resistance Technical Analysis Stock Market

Getting an idea of resistance level can help investors and traders in following ways :

  1. The buyer would know that he has to exit his position near 263 because the chances are more that the price will fall back from the 263 level. He can again take a new position if stock price breaks the resistance level of 263 and trades above that point.
  2. The person who wants to take a short  position can take a new position near 263 levels with a stop loss placed 1-2 points above the resistance level of 263.
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