CandleFocus Glossary Editor
A zone of resistance is an economic concept used to determine when a security or asset's market price has reached its predicted near-term high. This high is known as a resistance level and provides high probability areas from which a reversal or continuation of an upward trend can occur. This can be essential in stock market trading and is an integral part of risk management, as traders look to protect their investments.
By studying historical data it is possible to gain an insight into the behaviour of an asset and its reaction to different market conditions. It is this data that provides indicators to a trader of when a price has hit its upper limit, in this case a zone of resistance. This zone of resistance is determined by the amount invested for or against a security, as well as past reactions to the security.
In order to understand when a zone of resistance is forming, traders will look at a chart of the past performance of a security. This chart will provide an insight into the market and provide indicators of when the security is likely to move in a certain direction or reach a predicted high. By charting the price, traders have a visual representation of the zone of resistance. They will look for the areas in the chart where the price has historically remained static, or where the price has been systematically rejected by buyers, eventually forming a resistance line.
When a security encounters a zone of resistance, traders will typically observe an increase in volume. This is due to the vast number of traders looking to buy before the price rises above its resistance point. To mitigate the risk of buying at a resistance point, traders may decide to buy short, which means they anticipate the price of the security will fall after they purchase it.
In stock market trading, a zone of resistance is an essential factor used by traders in order to make informed decisions. By taking into account the resistance level as well as other factors such as past market trends, traders can reduce their risk and make informed decisions. Understanding of when a zone of resistance is forming can help traders gain insight into the behaviour of an asset and its reaction to different market conditions.
By studying historical data it is possible to gain an insight into the behaviour of an asset and its reaction to different market conditions. It is this data that provides indicators to a trader of when a price has hit its upper limit, in this case a zone of resistance. This zone of resistance is determined by the amount invested for or against a security, as well as past reactions to the security.
In order to understand when a zone of resistance is forming, traders will look at a chart of the past performance of a security. This chart will provide an insight into the market and provide indicators of when the security is likely to move in a certain direction or reach a predicted high. By charting the price, traders have a visual representation of the zone of resistance. They will look for the areas in the chart where the price has historically remained static, or where the price has been systematically rejected by buyers, eventually forming a resistance line.
When a security encounters a zone of resistance, traders will typically observe an increase in volume. This is due to the vast number of traders looking to buy before the price rises above its resistance point. To mitigate the risk of buying at a resistance point, traders may decide to buy short, which means they anticipate the price of the security will fall after they purchase it.
In stock market trading, a zone of resistance is an essential factor used by traders in order to make informed decisions. By taking into account the resistance level as well as other factors such as past market trends, traders can reduce their risk and make informed decisions. Understanding of when a zone of resistance is forming can help traders gain insight into the behaviour of an asset and its reaction to different market conditions.