Understanding Technical Financial Analysis Terms and Their Importance to Investors: Resistance
Understanding Technical Financial Analysis Terms and Their Importance to Investors: Resistance Technical analysis is perhaps one of the most often applied approaches in the financial markets that analyzes securities based on statistics and data, such as past prices and volume of trading. Investors and traders, with a set of tools and terms, can look deeper at market trends to predict some extent future price movements by these methods of analysis in their investment decisions. One of the most crucial concepts in technical analysis is resistance. Any investor looking to move successfully in financial markets needs to know about resistance, how it works, and its role in market dynamics. This article takes the reader down the road discussing resistance in technical financial analysis, its importance for investors, and how it might influence decision-making in trading and investing. What is resistance in technical analysis? Actually, technical analysis jargon for a level of price at which an asset-whether the stock, a bond, gold, or your currency-will face greater selling pressure. And once the price closes in on such resistance, then there is that much greater possibility for it actually to trigger increased sales action, as that price pauses and reverses and fails best. Resistance is that point on a stock or commodity\'s chart where \"ceiling\" keeps the price from rising any further. That is where supply dices demand because the sellers come into the market to take profits or open a new position to prevent the price from continuing any higher. Key Characteristics of Resistance Price Level or Area: Resistance is a given price level or within a certain range where the price of a given asset shows a tendency to reverse or give way. Historical Value: Resistance is usually marked by historical prices. If price has failed more than once at a given point, then such a point has historical value because it becomes important as a resistance point. Psychological Factor: Most of the time, the resistance is a psychological barrier. Price levels at times become significant to a trader and an investor. In a way, this shared sense of significance builds up massive selling at those specific levels. How Is Resistance Found? One of the key technical skills is the ability to identify the resistance level. Analysts observe such resistance levels through the preceding moves of prices. Some of the ways of detecting the resistance level include: Historic Price Peaks: The most apparent way to find resistance is on a historical price chart. If the price of a security peaks and then falls, that high point can be a level of resistance. Trendlines: Trendlines are the sloping lines drawn over an important high on the price chart. If the price of the asset continues to fail breakout above the trendline, then it could be the point of resistance. Moving Averages: There is moving average acting as a dynamic resistance. Say the stock price fails to breakout above its 50-day or 200-day