Support level: This refers to a price level where a stock may encounter support during a price decline, potentially halting the fall and stabilizing. It corresponds to the resistance level.
Resistance level: This is a price level where a stock may encounter pressure during a price increase, potentially causing a reversal and decline.
Practical application: There are two types - one formed by actual dense trading areas in the market, and the other by psychological price levels. For the former, if the market's dense trading area is above the current price, that area will form resistance when the stock price (or index) rises, known as "trapped positions." Conversely, if the current price is above a historical dense area, that area will form support when the stock price (or index) falls. Psychological price levels usually apply to indices. For example, for the Shanghai Composite Index, round numbers like 1900 points can form psychological resistance or support levels.
Special note: During stock price movements, resistance and support can be interchangeable. Specifically, if a major resistance level is effectively broken, it can then become an important support level in the future; conversely, if an important support level is effectively broken, that price level can become resistance for future price increases.
For individual stocks, if the price easily surpasses a previous dense trading area, it often indicates a high degree of control by major players. Additionally, as the stock price breaks through resistance levels, there are no more trapped positions above, opening up room for ascent. Such stocks are excellent candidates for short-term entry.
When a stock falls below a dense trading area, that area generates a large number of trapped positions. Once the stock price stops falling and starts to rise, these investors will want to sell to break even, creating resistance to price increases due to the large volume of selling. This is called a resistance level.
