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I recently read about support and resistance levels. The basic idea is that if it is the case that a stock usually rises when its value descends close to a certain number, we call that a support level. When a stock usually falls when its value ascends close to a certain number, we call that a resistance level.

These levels are often at whole number intervals as a result of traders placing limit orders a whole number prices.

My question is, on what time scale do these rules apply? Do these rules apply on an intraday basis? What about weeks, months, and years?

Edit: Yes, I realise that it is a commonly observed pattern, not an unbrekable rule.

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    I believe these are observations and terminology, not rules.
    – keshlam
    Aug 3, 2016 at 3:06
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    They're rules right up until the point when they're not.
    – quid
    Aug 3, 2016 at 4:25
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    Re edit: I don't even think it rises to the level of breakable rule. As far as I can tell, it's just definition of terms which can then be used to discuss whether/when/why this pattern might (or might not) be seen. The time scale will depend on the answer to those questions, and is not independently determined.
    – keshlam
    Aug 3, 2016 at 23:10
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    Some would argue they are not reliably meaningful on any timescale.
    – BrenBarn
    Aug 5, 2016 at 17:46

2 Answers 2

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Support and resistance only works as a self-fulfilling prophecy. If everyone trading that stock agrees there's a resistance at so-and-so level, and it is on such-and-such scale, then they will trade accordingly and there will really be a support or resistance.

So while you can identify them at any time scale (although as a rule the time scale on which you observed them should be similar to the time scale on which you intend to use them), it's no matter unless that's what all the other traders are thinking as well.

Especially if there are multiple possible S/P levels for different time scales, there will be no consensus, and the whole system will break down as one cohort ruins the other group's S/P by not playing along and vice versa.

But often fundamentals are expected to dominate in the long run, so if you are thinking of trades longer than a year, support and resistance will likely become meaningless regardless. It's not like that many people can hold the same idea for that long anyhow.

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Stock support and resistance levels mean that historically, there was "heavy" buying/selling at those levels. This suggests, but does not guarantee, that "someone" will buy at "support" levels, and "someone" will sell at "resistance levels.

Any "history" is meaningful, but most analysts will say that after six months to a year, the impact of events declines the further back in time you go. They can be meaningful for periods as short as days.

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