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This is the fifth video in our free introductory course on the basics of trading and technical analysis. The video covers support and resistance -- arguably the most fundamental and important concepts in technical analysis. See the full course for free at www.informedtrades.com/trades.php?page=freetradingcourses
If you enjoyed this video, you may also appreciate our section on on price action trading -- www.informedtrades.com/f386/ -- and our page dedicated to support and resistance: www.informedtrades.com/f427/
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And of course, don't forget to check out our huge (and growing!) collection of organized material to help traders learn. Visit, register as a member, and participate in our learning community at www.informedtrades.com.
VIDEO TRANSCRIPTION (to see this transcription with links, and images of charts, go here: www.informedtrades.com/2325-support-resistance.html)
Just as anything where market forces are at play, the price of a financial instrument in the stock, futures or forex markets is ultimately determined by supply and demand. Very simply, if demand is increasing in relation to supply then price will rise, and if demand is decreasing in relation to supply then price will fall.
As we have learned in previous lessons, what you are basically looking at when you see an uptrend on a chart is an extended period of time where demand has continued to increase in relation to supply. Similarly when looking at a downtrend you are seeing an extended period of time where demand has decreased in relation to supply for an extended period of time, causing price to fall. Similarly, in a downtrend, demand is continuously falling in relation to supply which causes the price of an instrument in the stock, futures or forex market to fall.
In this lesson we are going to look at something known as support and resistance which are price levels where the supply demand equation is expected to change, and price is then expected to stop moving in the direction it was moving previously, or reverse direction.