Technical Analysis - Support and Resistance Levels Study Tips

There are 2 types of Analysis to examine for the exam and in the investing world in general. These are the 2 you need to study and know.

The 2 types are:

Technical 
and
Fundamental

This post will focus on the Technical Part.

Basically, examining the price trends of a stock or security is the technical side. The main part of an analyst's job is to recommend the buying or selling of a stock based on it's technical trends. The Analyst will look heavily at what are called Support and Resistance Levels. These are in effect the high and low of the price.

These levels are charted based on time and price. For instance, if we chart DFT Stock for the last 52 weeks and see that it has a low of $32 and a high of $44, then the analysis would "peg" the support level at $32 and the resistance at $44.

What is the Support Level

The rule of recommendation is normally HITTING (reaching) a SUPPORT LEVEL IS BULLISH. This follows the basic rule of "buy low - sell high". Just remember the support is the bottom - or floor. Think of it as supporting you. In this example, with DFT trading down to 32 but not falling below it would be BULLISH.  However falling through a Support is considered Bearish. This is not 100% for everyone - but as a rule of thumb and certainly for the Series 7 - breaking through a support level is indeed BEARISH.

What is the Resistance Level

A resistance level is just the opposite of support. It is the high price the stock has reached - either historically or a specific time frame the technical analyst is watching. Under the Buy Low Sell High rule and the fact that the Resistance Level is the high price, HITTING A RESISTANCE LEVEL IS BEARISH. If the stock has shown that when it reaches it's high or resistance it trades back within it's trading range, it would make sense that a SELL recommendation would be made.

Breaking through a resistance price or level has the opposite effect. Going beyond a resistance is considered Bullish since going above a historical high pretty much throws the old resistance out the window and new levels will be set.

The fundamental side of analysis deals with the money end and financials of the company itself. Balance Sheets, Income Statements, Net Worth etc. Fundamental - think FUNDS $. There are some formulas to know for the Series 7. That will be laid out in a separate post.

As always, feel free to post a question.