This is the first example of many to come that illustrate pretty simply how resistance and support works on a stock chart.
Utilizing technical analysis you can make trades based off of support or resistance points fairly easily. The thinking behind such trades is actually quite simple, if we know that support for the stock comes at xxx price, than wait for the stock to hit that price to buy it. You then sell once the stock moves up towards the next resistance point.
To illustrate, I have taken a chart of Vonage Holdings (VG) which I talked about with the stock lingo word also today, and have drawn lines on the chart where the stock has found support and resistance. If you are up to date on your chart analysis skills, you will know see that this chart is of the last two months. Below the chart I will explain further how you could utilize the lines of support and resistance to your advantage.
The top three lines illustrate where the stock has found resistance, or difficulty crossing this price range. Whenever the stock has traded up to this area, it has sold back off to fall below this line. On the bottom as well you can see multiple times how the stock has received support around the $3 area. If you were swing trading you would be looking to buy your shares of Vonage as close to $3 as possible, then looking to sell them as close to $3.80 as possible. Pretty straight forward right!?
And just a quick dip into some 202 education here, to get your shares at $3 exactly, have any idea how it can be done without you being even present? Check out using limit orders, because using this order you could be on a beach napping and have your shares be purchased for you automatically.
Btw, there are tons of other articles on investment education in case you are interested. Also, did you know you can win cash from this blog every other week? Check out our contests here and get involved!