How Stock Charts Determine Overhead Resistance

Investors View Technical Analysis Magazine - by Mike Swanson

Before you find out about how stock charts [2] determine overhead resistance for stock prices it is important to understand the meaning of support and resistance. These are in fact major junctures at which the forces of demand and supply come together. Finance markets are generally driven by prices which in turn are driven by excessive supply (makes prices come down) and by demand which make the prices shoot up.

Furthermore, supply is associated with bears, bearishness and selling. Demand on the other hand is associated with bulls, bullishness and buying. With every increase in demand the prices will shoot up and when supply increases there is a corresponding drop in prices.

If both demand and supply are equal then prices will move horizontally with both bears and also bulls struggling to get the upper hand.

Resistance is a price level at which there is strong selling taking place and this is strong enough to prevent a further escalation of prices. Logically, as prices rise toward a resistance level sellers will start to sell and buyers will shy away from buying. At the resistance level the supply should be able to get the better of demand and this will not allow prices to rise higher than the resistance level.

In case you are wondering about how stock charts determine overhead resistance for stock prices using technical analysis [3] the answer is that a stock chart can provide valuable information. For example, if you need to know about closing prices, high-low-close and open-high-low-close and candlestick then using a stock chart is the best method for you.

And, with closing price line charts you can find out the days closing prices for stocks and by eliminating unwanted information it becomes possible to spot trends and also identify patterns which in turn can help you find out what a stocks overhead resistance would be.