Daily support & resistance levels

Daily support and resistance levels.


My question is very basic- How do you calculate them ?

An example using LSE share listing would be helpful.


OLLIE

hi ollie - and welcome to T2W

You don't really calculate (well, I don't anyway) support and resitance levels - you look at a chart and see them.

They're the peaks and troughs of previous price action (price bars), and the bigger the peak (or trough) usually the more important it will be.

It also depends on your timeframe - on intraday charts the more important support and resistance levels are horizontal over the last 2-3 days usually, whereas on end of day charts the support and resistance levels can be going back years. There may also be angled support, where a trendline can link two or more points.

You'll also find that significant numbers (such as 800p, 200p, 1000p etc) are also support and resitance points as these are psychologically important because shareholders remember these points. Price has memory, and you'll find that is why support and resistance points work so well - imagine that you narrowly missed selling a stock at its all time high of, say, 225p. So next time it rises to 224p or 225p you will probably sell, and as hundreds of shareholders might be thinking the same, that will make 225p a resistance point.

Is there any particular stock you're interested in for support and resistance points?

Thank-you Skim for your prompt reply.

I have been watching Severn Trent (SVT) for the last few days. It has fallen to a support level based on lows at early DEC 2002, late Jan and mid March 2003 and should rise to 765+, but I was not sure the daily trend has bottomed hence my original question how to calculate daily levels.


OLLIE

Almost right, but there are two forces in operation here. There is what is called an up trend trading channel, on which you base your support figures. Then there are the horizontal support and resistance lines that some consider more important. As a guide, resistance support was around 680. Here you can see indecision as the price approaches resistance during Oct/Nov. Clearly the maket thought that price was high enough- no more buyers.Selling forces the price down. The next attempt during Dec/Jan sees a definite battle between the bulls and the bears, clearly no side winning in the 670/690 price range. Then the market decides the price is right and people are willing to pay a higher price and up it goes. A brief relapse then off again, followed by a "test" of 680 for support- Sellers not interested because they believe the price will go higher. And so it goes on, step by step until the whole process breaks down, ( or up).
Theoretically, a trend ( or res/supp. ) gets stronger the longer it goes on. In this case we have a well established up trend.This will continue until market forces decide different. So a long here , with a stop just below support at 680( 675?) is the choice move. The target will be the intersection of the last high( resistance) and the uptrend resistance line- 785 ish. This gives a reward risk ratio of just over 2:1 assuming a buy price of 710 and 5%.
There is a long established trading channel between 680 and 780 going back 3 years, so there is no reson to expect any more than 780.
"History repeats itself" can be seen here to good effect- the rising channel being a previous pattern during April to Nov. 2000
Hope that helps.