Support And Resistance

Charts and charting are one of the ways the market talks to you. The first time you look at a chart it is pretty much meaningless. But as you learn to use the many studies that are applied to a chart it becomes easier to understand what that chart is telling you.

The most important aspect of reading a chart is determining support and resistance. So what the heck are support and resistance and what makes them so important.

FYI. I removed six simple moving average lines and the Keltnor Channel from this chart to make it easier to read.

 

When a stock is falling support is a prior areathat the stock found willing buyers at when it was falling and it reversed direction and started to recover from its fall. Conversely, resistance is where a stock finds more sellers than buyers and starts to fall.blog nflx 6-6-2015

In the chart above there are four different panels with different studies in each of them. The upper panel with labeled support and resistance lines are all I will address here. The lowest labeled support line would be consider very strong support by me. To find the support structure for $409.83 go back to 1-21-2015. NFLX is currently at $633.00 as I write this. Even on horrible news it would get a $25 to $30 bounce off this level just because it had fallen by a third and there are willing buyers waiting at this level.

From the $409.83 level there are two small reversal candles that are also support levels, but they are very small and only a pause in direction and thus very weak support. If the fall in a stock is overdone the stock COULD(not likely but possible) reverse on one of these.

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