Zone of Support
Candlefocus EditorA support level is calculated by observing the historical prices of a security and is a price level where investors tend to buy the security, creating an increase in demand and preventing the security from falling further. This increase in demand is the crucial element that support levels provide, as it allows investors to make a selection based on value.
By monitoring the zone of support, investors can account for potential long and short positions as well as identify any potential short-term risk associated with the security. This is due to the fact that support levels are also known to be areas of resistance where selling pressure take over and the security's price is pushed back down.
It is important to remember that a zone of support is not always a secure buy signal, as the security may not always bounce off the zone of support, leading to further losses. Therefore, it is important to analyse the strength of the security and any outside factors that may contribute to its behaviour, such as economic news and political events.
Overall, zones of support provide investors with an important tool to help identify potential trading opportunities, but ultimately serve as a signal that needs to be further analysed before action is taken. With careful evaluation, investors may be able to identify good entry and exit points and benefit from substantial price moves.