Modelled using a horizontal or oblique line (ascending or descending), support marks a price level that is likely to temporarily or permanently end a price fall.
During a downtrend, investors can spot a low point that the price is struggling to break through. This psychological zone of confrontation between buyers and sellers can then lead to a bullish reversal of the trend: this is support. Support is therefore the exact opposite of resistance. A block observed at least twice allows, in chartist analysis, to draw a straight line that represents support. In the support zone, traders can behave in two different ways.
Some follow the downtrend and continue to sell, betting on a breakthrough that could cause an acceleration of the downward price movement. Others, on the other hand, prefer to take profits on their short sales.
Others take advantage of support to enter a buy position with a stop order below the support level. Although support levels are often directly represented on the price chart, it is also possible to identify support on certain technical indicators such as the RSI. Other technical indicators such as moving averages can also act as support when they move below the price level.
Discover a new way to generate income through Trading 2.0 with the ARYA Starter Pack !
Certain chartist patterns such as the Double Bottom or Triple Bottom can form in contact with the support and thus reinforce it. Correctly identifying the right support levels sounds simple, but it is not so simple. How much "room for error" should you allow before plotting support on your chart ? Too small a margin of error could cause you to miss some key support levels, while too large a margin of error could cause you to see them everywhere...
Although the concept of "support" is a simple one, it is not so simple for a beginner to detect the right levels. If you are a beginner, rather than looking for a perfect alignment, take a look at the volumes to see if they are rising in contact with the supports you have identified.
If volumes are increasing in this key price area for no apparent reason, then chances are you have identified the right support, i.e. the one that other traders also value!