Resistance Line Examples
A lot of technical analyst recommend to use a weekly chart first to mark your resistance zones. However, over time and with practice you will find that daily charts with 12 months of historical should be sufficient to find your resistance zones.
It is very simple to spot resistance lines (this area is where there is seling pressure). Remember that we are looking for at least two points where the price has touch the existing trend. There are only 3 possible trend directions in any market, these directions are horizontal, ascending or descending.
So how do we spot resistance lines? Remember, that we use technical analysis to project future share price. A line is drawn along these points and are extended forward to project a future price target for a particular stock or share.
Let me give you some real life example of Resistance lines for your to familiarise yourself.
In the chart above you will notice how easy it is to spot Resistance zones. Again this are identified by at least to points bouncing back almost at the same price. Have a look at where we have placed the red line for you. Notice that the price had a hard time breaking the $3.90 mark in the short term and everytime it tried to break it it came back down.
Let us show you how you can identify an uptrend resistance line.
If you look at the chart above had you drawn and projected forward the first to points in from the beginning of March you could have almost guessed what would happen when the share price touches the uptrend resistance line all the way through to May 2006. You guessed it, share price reversed almost by one day.
So what happens when the price breaks through the Resistance line? This is such a popular question. Well the answer is very simple, often when the price breaks resistance lines, the old resistance becomes new support.
You may be wondering right now if you have read this before. You have ! The principles are the same for support lines too, only in reversed.
This can sometimes be confusing for new traders to understand. As always though it is best to provide you with real life chart examples.
This is an example where horizontal resistance is broken. As soon as it breaks the old resistance becomes support. As you can see inside the green circle there were numerous times when the share price tried to break through resistance but could not break through until late March early April.
But why does this happen? There just seem to be a lot more sellers at this point than buyers. It is very simple supply exceeds demand. Of course I could give you lots of reasons as to why this happens but to keep it simple lets just stick to basic economics.
On the next example, the blue circle illustrates support as the stock price bounces of the downward trend line. When the stock price breaks through the support line (red circle), this now becomes new resistance on the way up (Green circle). I really do hope you get the idea here.