Whether it is to find Nifty 50 support and resistance levels or Bank Nifty support and resistance levels, the process of both will be the same. However, Bank Nifty is a little volatile, which can affect your trading psychology. You have to put a big stop loss in Bank Nifty compared to Nifty.
Support and resistance are the basic concepts in technical analysis and can be understood with the help of candlesticks on the chart. Identifying Nifty 50 support and resistance levels is essential to read price action on the charts correctly.
You can mark a zone by drawing support and resistance levels or mark a zone with a trend line. It depends on you what techniques you are comfortable with. Make trading easy for yourself, not complex, by doing over things. You can also combine support and resistance with supply and demand.
The price moves only because of supply and demand; now, the price will increase if the demand is more than the supply. And when the supply exceeds the demand, the price will fall. And if the demand-supply is equal, then the price movement will be sideways.
Now apply this simple concept on your reading chart and try to mark the levels. Before drawing Nifty Support and Resistance levels, we must know what support is. And what is resistance?
Here is an in-depth post regarding demand and supply in stock market with chart examples and thorough explanation.
What are the support and resistance in the stock market?
Use any stock market in the world or trade any stock, there is only one basis to find support and resistance. You can also use this formula in stock, futures, crypto and commodity trading.
Support in Stock Market:
Support in the stock market is a price zone from which the market tries to reverse. It is a zone where buyers are interested in buying the stock or sellers are now keen to sell. Now, this price zone is formed either by the price stopping at a certain point for some time or its recovering at once (known as the sharp recovery); the reason for this is that the demand is more than the supply.
The price can stop from 15 minutes to 2 hours if we talk about intraday support and resistance. If the price spends 2 hours to 4 hours in the support range, then the trade can be considered for swing. For confirmation, you must mark previous Nifty 50 support and resistance levels.
Resistance in Stock Market:
Resistance in the stock market is also known as the opposite of support. The way support is formed in the same way resistance is also formed. A support zone is formed at the bottom, and resistance can be seen at the top.
Price ooper ko move krta hai ktuinki damand jayada hoti hai supply se. Jaise jaise kisi stock ka price ooper ki taraf move krta hua jaata hai to usse buy karne ki ichha kam hoti jaati hai.
Now, this can happen for many reasons:
- Traders feel the process is high
- Price has come to its target zone
- Buyers not interested in buying at a high price
There can be other reasons too, but an experienced trader knows from the chart that the supply dominates the demand.
When the zone of support and resistance is formed on the chart, you can mark entry or exit points at those certain levels. Now you can use these zone levels on stock, nifty futures, bank nifty, commodity or even crypto charts,
The thing to be understood here is what the price will do when it comes to your marked support or resistance zone. Please pay more attention to my point; the price will bounce back to its level or break that level and go to the next support or resistance.
And that next support and resistance would also have been created by you on the chart, so you have to mark your zone beforehand. Trading on the zone of support or resistance can greatly benefit intraday traders because if the price moves in the opposite direction of the trade, you can exit the trade by giving a small stop loss.
Remember Some Basic Rules
You can use any time frame for support or resistance, but the bigger the time frame, the more those levels are called strong support or resistance. Now people who use big time such as 1-hour, 4-hour, daily, weekly and monthly are called swing or potential traders.
To draw the current support or resistance, you will have to see the previous price behaviour on the chart, at which points the price touched, breakout, or breakdown.
An experienced trader gives great importance to the last support or resistance levels because the price is likely to behave in the same way again on that marked level.
The price doesn’t need to react similarly on those levels, and it may be up or down. That’s why support and resistance levels are also called zones. Technical analysis is not rocket science, but the price can take a dip at its support or resistance levels, which is also called stop loss (SL) hunting. Now, if you want to avoid SL hunting, chart reading is very important.
Support levels represent prices on the chart where demand has increased to match supply. Now it prevents the price from falling; it stops at a certain point, which can also mean that the price has reached the previous support zone.
Types of Support and Resistance level in trading
- Trendline Support
- Psychological Levels
- Moving Average Support
- Fibonacci Levels
- Historical Support
Using Trendlines to Draw Support Resistance Levels
The above examples are flat support and resistance zones considered perfect for trading in a sideways market. The market does not remain sideways forever; it remains in an uptrend or downtrend. Now trendline is also drawn using these points.
I have covered this topic very deeply in my blog, Learn Trend Line trading strategy and especially a beginner will understand it easily.
Let me share some examples here; it will be easier for you to understand support resistance.
Keep in Mind Psychological Levels
Psychological levels are also known as round numbers. By psychological levels, I mean that the stock’s price should be in its round number. If so, then it helps to confirm support and resistance.
Now the round number is not everything; what matters the most is the price action taking place at that point cause the trade is taken according to the action taken by the price in that zone. Round numbers help you to double confirm your position.
Many big retail investors or fund houses fix their target or stop loss on round numbers only. Now, if entry or exit is fixed at one place in large quantity, it acts as strong support or resistance.
For example, If an investment company places a sell order for all its stock at 50 rs, it will be difficult for buyers to observe all those orders at once. That’s why that zone will act like resistance.
Moving Averages Support
Many technical traders use moving averages to gauge the short-term momentum of futures. Rather, those unable to draw trendlines will often consider using moving averages.
Traders can use moving averages in many ways, such as when price lines cross each other in the upside direction, they look for buy, and to do this properly, you have to plot two moving averages (MA) on the chart.
Similarly, you can look for sell when the price starts to trade below the moving average. You can call these touch points on the moving averages support and resistance.
Use of Other Technical Indicators
You can use a lot of indicators to confirm your support or resistance. But the areas manually plotted on the chart are the most effective.
So it would help if you practised drawing the zone manually, although the indicators only help you to confirm it. I will write and discuss the Most Popular indicators in my future blogs.
Here are some popular technical indicators that you can use:-
- Bollinger Band
- Moving average convergence divergence (MACD)
- Relative strength index (RSI)
- Stochastic Oscillator
In conclusion, finding intraday support and resistance levels is a key part of trading effectively. Support levels act as an ‘anchor’, providing each trader a place to enter and exit the market. Resistance levels also act as an area of potential profit-taking zone. By identifying these key levels, traders can make good decisions on when to enter or exit. If you have the right skills and strategies, you can make the most of the support and resistance levels.
Hello Traders, Myself Prashant, doing trading from last 4 years. I’m uploading content from my own experince hope you’ll appericate my efforts. If you have question please leave a comment. Follow @Instagram