How to Calculate Support & Resistance for Stocks

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Support and resistance in investing are important elements identifying the likely boundary or trading range (that is, the high and low prices) for a stock over a given period, such as an hour, day, year and beyond. The support level represents the price at which buyer demand for a stock was greater than the supply offered by sellers. The resistance level is the inverse. Theoretically, support protects against price declines and resistance acts as a barrier against a rising price. Calculating support and resistance requires the use of a stock chart.

Directions

  • Using a chart from the trading service you use for investments or from a financial website offering free charts, enter the stock symbol of the security. Set the period of the chart (e.g. day, month or year) based on the time frame you are interested in. Create a printout of the chart or use the charting tools provided by the system. Draw a horizontal line connecting the highest previous prices at which the stock traded above the current trading price, then do the same for the lowest previous prices. The two lines will identify the support (lower line) and resistance (upper line) levels for the stock in the selected period. Comparing those levels with the chart's pricing scale will provide the stock's specific support and resistance prices.

References

  • Photo Credit seewhatmitchsee/iStock/Getty Images
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