Support and resistance
When the laws of supply and demand meet on a chart, they generate reactions that we can use when trading.
When there’s too much demand and too little supply, that area is oversold, or we call it having support against a potential price decrease, which helps the price increase. Price in that area becomes very attractive for buyers, so orders there are getting filled. Think of support as an area where buyers want to buy, an area where the forces of demand overwhelm the forces of supply.
Even though the support line promotes a price increase, if it is broken, the forces that created the supply and demand move to the lower level, the previous support line becoming the new resistance line.
When there’s too much supply and too little demand, we can call the area overbought or having resistance to a potential price increase, which entices the price to fall.
The price there is too expensive for market participants to buy, so the sellers are...