Lesson Three: What is Support and Resistance Video Lecture | Stock Trading: A Complete Guide (English) - Business Basics

hey what's up guys Allen here with eat
sleep trade net welcome to my third
lesson video we're gonna be going over
what support and resistance are how to
identify support and resistance and how
to use support and resistance in your
trading so sit tight for just a second
and we will be right back to get into
this lesson
alright guys welcome back we're gonna
take a look at the daily chart for PT X
the reason I'm gonna look at this chart
because I think it shows a good example
of what I'm looking for when I'm trying
to find support and resistance and just
kind of an idea of why I added this
stock to the watch list when I did back
on the week of the 23rd of February so
first let's talk about what support is
now support is a specific price range
where a stock is deemed undervalue and
buyers begin to step in now note that I
used the term price range so support is
not an exact price in exact math or an
exact number support is an area or a
range where buyers begin to step in and
as these buyers step in and the demand
for the stock is increased its price
begins to reverse and it heads back up
so a perfect example of support here on
PTX is gonna be this area right here
we'll call it 761 for now but as we know
this is just a range if you need to you
can draw multiple lines on your chart
here to let you know and remind you that
support is a range and not an exact
number
we don't need multiple lines though we
just need to tell ourselves hey it's a
range don't take it to the penny
another area of support that I can see
on this chart is right here so where the
price came down tested and then
continued back up so there's a few areas
of support that we're gonna look at so
next up is resistance and what
resistance is and resistance is just the
opposite of so
port it's a specific price range where a
stock is deemed overvalued and sellers
begin to step in as you seller step in
and the supply of the stock has
increased its price begins to reverse
and head back down so if we take a look
right here we could see that when the
stock rose up to this price here it
reversed as the seller stepped in and it
headed back down alright and you want to
use areas of support and resistance that
are significant to the chart and what I
mean by that is you can see multiple
times the chart had failed to break
above this resistance area not just
right here but if we go back to the
history of the chart all the way back to
July you could see multiple times the
chart was attempting to make it through
this area of resistance and was never
really quite able to so we're coming off
a bottom and a pretty big downtrend and
we've established some support we've
come up we've established some
resistance and now we've started to come
back down to establish a new area of
support or a higher low so we're
establishing support at a higher and
higher price which shows us that more
and more buyers are coming in and the
demand for the stock is increasing but
we've also run into this area of
resistance up here where the stock
hasn't been able to break out above and
if we look we've actually got another
little area of resistance that you can
consider right around here so you could
see we failed failed failed pulled down
failed failed failed finally were able
to close above it that's a really good
signal right there when you're able to
close above a resistance area that you
failed to break multiple
x okay so failed failed failed failed
failed finally we closed above it the
chart is starting to show strength but
we're not out of the clear water yet
because we've got more resistance just a
little bit above about 20-30 cents above
here in the 1920 area but as you can see
on Friday February 20th we were able to
close above this area of resistance as
well which was significant all the way
back to July where we weren't able to
close above it okay so that's what I
seen when I added this chart to our
watch list
I seen a stock that was on a downtrend I
seen it come out of that downtrend and
start to close above resistance areas
that I had previous failed that had
previously failed to close above and
what you want to see when these
resistance areas are broken is you want
to see them turn into support and if we
look back on the history of the chart
for example let's look at this area of
resistance so where this area had failed
to break through multiple times here and
it's also relevant here on the chart
back in US early September so we failed
a break above it and finally about a
month or two later we were able to get
that close above on the chart and break
out of this resistance area now once we
break out of the resistance area we want
to see that resistance area start to act
as support and you can see once the PTX
put in a high up here it pulled back and
that same resistance area down here
started acting as support and then once
again here in the future it started
acting as support again so that's what
you want to see when a resistance area
is broken if a resistance area or range
is truly broken then you'll see it start
to act as
port so right here again looking up at
where we were looking at the trade we
seen resistance broken here and it
actually acted as support and then our
next area of resistance up here was
broken and closed above as well so our
trade idea on this was if we can break
above this will call it 919 area of
resistance then we should be able to get
a nice rally and get a run up to this
$10 area where we have significant
resistance again so let me change this
to red real quick so you can see we
failed the break resistance here failed
to break resistance here and failed to
break resistance here so again multiple
times on the chart we fail to break
above this $10 area so now we know if we
are going to take a trade on this we
want to see it hold above this 1920 oh
sorry
919 area and we want to see it head
towards the $10 area so let's see what
happens on the next day so next day you
can see we got a nice green candle again
again the price comes down test this
$19.99 19 or 920 area it acts as support
and the stock continues up now we
haven't really ran into any major
resistance at this point so we would
expect this stock to continue until we
start getting up to this $10 area so
next day kind of just a no movement day
but still you can come down and see that
our previous resistance is now turning
into support for our stock so let's go
forward again and then finally we get a
nice big breakout and we slam right
through this $10 area of resistance
so knowing what we know we would like to
see this $10 area of resistance act as
support if we get a pullback or the
price starts heading back to this $10
range now breaking above this $10 area
confirms for us that we have momentum in
this trade strong momentum and that it's
continuing so if we seen this chart we'd
want to map out our next area of
resistance which you could say here's a
nice area of resistance right here in
the 10 50s which the chart tested that
day so this may be your next area you
may say tomorrow I want to see this
chart break above 10 50 if it does not
break above 10 50 like it failed to do
so here then that is going to show us
weakness and the stock could be heading
back down in the opposite direction so
next day we get a nice gap up and the
stock manages to fluctuates quite a bit
through the day but manages to hold on
to its price and closes well above even
our 10 50 area of resistance so now we
want to see our 10 50 area of resistance
start to act as support as we head up to
our next resistance area which is gonna
be then up here at around 11:30 so now
we're coming in and we finally get
something that looks like we could be
leading into a pullback so what do we
want to see we want to see this 1055
area act as support so let's see what
happens so we get a green candle looks
like it might already be bottoming off
yeah and we got this day right here
comes down to a low of 1060 before the
buyers start stepping in so you know
that's pretty close 1055 you're getting
in a 5 cent range that this area is
starting to act as support and buyers
are stepping in at that price
that's good confirmation that the trade
is working in your favor so let's see
what happens next
before you know it we have another big
breakout and the stock slams through our
next area of resistance here at 11:38
again confirming that we have
significant momentum and strength in the
upward direction support and resistance
are the keys to finding breakout stocks
once a major support resistance is
resistance area is broken it shows
significant strength in that direction
and this can be applied for a stock that
is going either up or down these
breakouts can be used to find entry
points so like we did here this breakout
was confirmed to give us an entry point
of when we could buy the stock and we
thought strength was confirmed and this
thing could continue higher these
breakout points can be used to set a
stop loss so for example our area of
resistance here that we broke out above
that might be the area we're gonna want
to put our stop or a stop right below
this area that's now going to turn into
support or we can use these support and
resistance lines to confirm momentum in
a trade that we're already in so a
perfect example of that is we took our
trade here and we were waiting for to
test this $10 resistance area and on
that day we slammed right through that
$10 that $10 area this was confirmation
that we have a lot of momentum and a lot
of strength in this trade that we took
alright guys I hope you have a better
understanding of what support and
resistance are that's gonna wrap it up
for this video if you have any questions
or suggestions please leave them in the
comments below don't forget to Like and
subscribe for future videos and also
check out our website eat sleep trade
dotnet from there you can follow me on
twitter and check out the forums to stay
up-to-date on all the stocks that we're
watching and trading alright thanks for
watching guys and we'll see you in the
next lesson video