0

The following is a chart from Yahoo for UAL. What do you mean by Support, Resistance and Stop Loss in this graph?

enter image description here

  • 2
    Consider using Google. These are basic terms and there are countless articles that explain them. For the most part, Investopedia is a very reliable source. – Bob Baerker Dec 8 '19 at 14:30
7

When talking about stocks, we sometimes like to pretend that the prices are completely rational and entirely related to the intrinsic value of the stock. The fact of the matter is that this is not true. In reality, stock prices are affected by human psychology (and human-designed algorithms).

If a stock repeatedly approaches a particular price before turning down again, that price is called "resistance" because it resists the stock's path upward. The more times the resistance is tested and holds, the stronger that resistance level is perceived to be by traders, and the harder it is for the stock to break through that level. The reason for this is because traders, assuming the price will fail to break through the resistance level, sell the stock when it approaches that level. That creates a self-fulfilling prophecy. Round numbers such as multiple of $10 can also form resistance levels because people tend to place orders at round dollar amounts.

Support is essentially the opposite of resistance and it works the same way. If a stock repeatedly approaches a price from above and then fails to fall below that level, that price point is called support.

In general, when stocks break through support or resistance levels, they tend to continue moving in that direction on "momentum."

A stop-loss order is an order to sell your stock if the price falls below a certain level. The reason you'd want to do this is to sell your stock before it loses a much greater amount of value.

| improve this answer | |
1

Point & Figure charts are useful for determining support & resistance. They only track price change and they ignore time, filtering out day-to-day market noise.

enter image description here

enter image description here

Support levels often become resistance levels:

enter image description here

A more in depth explanation is available here

Here's a Point & Figure chart for the past 20 months of UAL:

enter image description here

| improve this answer | |
  • 1
    This answer is not appropriate for the level of the question. – Daniel Dec 8 '19 at 17:39
  • Are you implying that you don't understand the support and resistance levels depicted in the charts posted? – Bob Baerker Dec 8 '19 at 18:52
  • 1
    I do, but I know what support and resistance mean. The OP asks what they mean and this answer doesn't explain it at all. – Daniel Dec 8 '19 at 18:58
  • I provided a link that provides a detailed explanation so I think my reply answers the question. You think it doesn't so therefore, why don't you put in the effort and craft an answer that offers what you think is better explanation? Step up and earn some points. – Bob Baerker Dec 8 '19 at 19:08
  • Ok done. Let me know if you think I should add anything. – Daniel Dec 8 '19 at 22:52

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.