Support can be found in many places on the chart it all depends how far back do you want to go. To me the most recent support matters the most, but to a lot of traders they can go as far back as 5 to 10 years. But for much quicker plays we can look at most recent actions. Now what is support? It's when price hits a point of resistance (demand) and retraces back to the point of supply which will be our support. Usually by support area you will see increase of buyers and decrease of seller, lets look at this GS - Goldman Sachs Group Inc. (NYSE) chart below.
In the image above we got potential support forming where the volume was raised, we got a bounce with a retest and a small followed moved up, as we hit demand the price is now will show us how good is that support. As we approached the support (supply) area we see a Volume spike with a double bottom forming. Then a bounce followed with a higher move - the support was retested as the supply kicked in and the sellers weakened.
What is resistance?
Resistance as support can be found in any time frame, any chart and any where you look on the chart but how can we identify it. lets look at the same chart with a little bit of additions to out.
Resistance happens when price level hits the point where demand is much stronger then supply, in the other words sellers become much stronger the buyers. where further in chart the resistance has failed and the supply (buyers) and up being much stronger and had a Breakout above the resistance area.
Lets analyze another side of resistance in where resistance holds and shows us where demand is much stronger then supply and resumes the downfall of the price.
In this chart of F - Ford Motor Co. (NYSE) we see a double top resistance, at the first pick we see that sellers were stronger then buyers which created our point of resistance. Sellers at this point were stronger, then we hit point of support and caught a bounce back towards resistance area. As we getting closer to the resistance line we get a huge gap down where everyone was ready to sell at that $14 mark. in this example both Support and Resistance got retested perfectly, but not always we can see a reversal point at Support or Resistance, sometimes we can see a spike above or below our points as well as it can be shy of our expected Support and Resistance area.
Also in this example in the chart above we see another example of Gap Support and Resistance, where the Ticker has a gap down and might have a possible area where the price might get rejected. at this point our price is stuck in a channel and for now we would play price between $11.5 and $14 before the price breaks either way and shows us next Target to watch for.
