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What Are Nifty Support And Resistance
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Support and Resistance is the major concept in technical analysis. You will often hear technical analyst talking about the ongoing battle between the bulls and bears or the battle between demand and supply.
Support is the level where a lot of traders are willing to buy and resistance is the level where a lot of traders are willing to sell the stock. Support and resistance levels are considered as important in market psychology. Round number in stock market has a significant role and act as support and resistance universally.
In Nifty, round numbers like 7800,7900, 8000, 8100 and 8200 act as a major support and resistance levels because they often represents the major psychological points at which traders take buy or short decisions. When One of these point breaks, the psychology behind the stock’s movement is thought to have shifted. Then new level of Nifty Support and Resistance will be established.
Importance of round numbers.
Take example-Suppose Nifty Future is in downward trend. Buyer generally buy large amount of Nifty future once the price starts to fall towards a major round number such as 8000 level in Nifty. It makes Nifty future to fall below that level. Thus 8000 level act as support. If 8000 level in Nifty future breaks with large volume then it acts as resistance. Similarly if Nifty future is in bull phase then 8000 will act as resistance and breaking of this level with high volume will make it support and make a new trend.
Nifty Support and resistance analysis has an important role in trend analysis as it give direction and identify trend reversal. For example in below image if a trader identifies an important level of resistance in Nifty is at 7980 and it has been tasted twice but not broken, he may decide to book profit and move out of the stock or get a position in short side.
How to trade with Support and Resistance?
In technical analysis both support and resistance decides the trend and trading range. Don’t buy below support level and don’t short above resistance level. If a trader is looking to buy in uptrend and Nifty is in over sold region near 7555 in the picture or near lower Bollinger band then trader can simply wait for prices to retrace and reach a support level. The support level can be a Psychological level, or a Fibonacci retracement, or a pivot point. After retracement trader can buy Nifty future giving stop loss as support level. Similarly if a trader wants to sell Nifty future in a bullish market then wait for prices to come below the resistance level of 7980 in the picture and then trader can short nifty future and giving resistance as stop loss.
It is important to note that a break beyond a level of support or resistance doesn’t always have to be reversal. For example if price of Nifty moved above the resistance levels of an upward trending channel, the trend has accelerated, not reversed and the resistance will act as support from there. So don’t place orders directly at the support or resistance levels.
Mr. Arthur Jackson, Technical Analyst and Founder of Nifty Trend providing trading advisory services in Nifty Support and Resistance, Nifty Trend for Today, Equity, Derivatives and Commodity market. He also made a guest appearance in various workshops which were conducted on stock market awareness.
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