Horizontal Line
Candlefocus EditorSupport levels form when a stock's price stops at a certain area, temporarily halting its decline and inducing buyers to come into the market, pushing the price up again. This creates a "floor" on the chart that functions as a level of price support and establishes an area where buyers are more likely to enter the market. On the other hand, resistance levels indicate areas where selling pressure is strong enough to halt the stock's rise and prevents it from exceeding a certain price level. This creates a "ceiling" on the chart, acting as a price level of resistance where the stock is less likely to climb past.
The horizontal line is typically drawn from a series of swing highs or lows, representing a barrier of support or resistance across the price chart. Technical analysts typically look for a certain pattern of support and resistance levels to develop, as this can be used to predict the stock’s future price movement. Technical analysis combines the use of horizontal lines with other forms of chart analysis, such as trend lines and chart patterns, to gain a better understanding of the future direction of a stock’s price action.
In conclusion, the horizontal line is an important tool in technical analysis, providing traders with a powerful way to identify levels of support and resistance. By analyzing the placement of horizontal lines along with other chart patterns, traders can better predict the future course of price action in the market.