Things You'll Need:
- stock charting program
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Step 1
How do you tell the difference between support and resistance? Here's an easy way to remember. We walk on the floor, which supports our weight; so remember the support is at the bottom. If we throw a ball in the air, it hits resistance at the ceiling and can go no farther; so remember, resistance is at the top.
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Step 2
You'll need a copy of the stock's chart from the last six months, a ruler and a pencil. (You can do this on the computer if you have access to an electronic chart.) It's easier for beginners to find the support and resistance lines on a line chart, but more experienced traders can use candlestick charts.
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Step 3
Put your ruler (or a computer line) at the current price on the chart and begin sliding it upward. When your line is touched by two or three points on the chart, you have identified a resistance level. This is the level where buyers of the stock begin to feel uncomfortable and often give in to selling pressure.
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Step 4
Put your ruler near the current price and begin to move it lower. When your line is touched by two or three points on the chart, you have identified a support level. This is a lower level at which the traders start to again get interested in buying the stock.
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Step 5
Once a stock hits a support or resistance level, it can easily bounce and retrace in the opposite direction. A bullish stock may hit resistance and begin to trade bearish, or vice-versa. After the reversal is confirmed, a trader might consider getting involved.
