Introduction
Support and resistance are two of the most important concepts in trading. They form the basis for price action analysis and can help traders make better decisions on when to enter, where to exit, and how to manage risk. This strategy is especially useful for beginners in the Indian stock market who want to learn how to read charts and make informed trades.
What Is Support and Resistance?
Support is a price level where buying interest is strong enough to prevent the price from falling further.
Resistance is a price level where selling interest prevents the price from rising further.
These levels often act like invisible “barriers” on the chart.
Why Are These Levels Important?
- They represent key decision zones for buyers and sellers
- They help define entry and exit points
- They can be used to place stop-loss and target levels
- They form the basis of breakout and reversal strategies
How to Identify Support and Resistance
1. Historical Price Zones
Look for areas where the price has reversed multiple times. Draw horizontal lines through these points.
2. Swing Highs and Lows
Use recent peaks and valleys on the chart as reference points.
3. Round Numbers
Stocks often react at psychologically significant numbers (e.g., ₹500, ₹1000).
4. Moving Averages
Popular averages like the 50 and 200-day MA can act as dynamic support or resistance.
Trading Strategy for Beginners
A. Range-Bound Strategy (Buy Near Support, Sell Near Resistance)
- Entry: When the price approaches a known support level and shows a bullish signal (e.g., bullish candle or volume spike)
- Exit: Near the next resistance zone
- Stop-Loss: Below the support level (to avoid big losses if it breaks down)
Example:
- Stock: HDFC
- Support: ₹2500
- Resistance: ₹2600
- Entry: ₹2510
- Stop-loss: ₹2485
- Target: ₹2590–₹2600
B. Breakout Strategy (Trade When Resistance Breaks)
- Entry: When the price breaks a strong resistance level with high volume
- Exit: Based on measured move or next resistance zone
- Stop-Loss: Just below the breakout level
Example:
- Stock: Infosys
- Resistance: ₹1480
- Breakout Entry: ₹1485 with volume
- Stop-loss: ₹1465
- Target: ₹1520 or higher
Tips to Improve Accuracy
- Use candlestick confirmations (e.g., hammer, engulfing)
- Watch for volume spikes near support/resistance zones
- Avoid trading in highly volatile news-driven markets
- Combine with indicators like RSI or MACD for confluence
Mistakes to Avoid
- Blindly buying near support without confirmation
- Not placing stop-loss—especially near key zones
- Assuming every breakout will succeed (some are false breakouts)
- Trading too many stocks at once
Conclusion
Support and resistance trading is simple but powerful. It gives you a framework for reading price action and planning trades with structure. For beginners in NSE trading, this strategy is a great place to start. Practice it, combine it with proper risk management, and you’ll gain the confidence to handle the market with clarity.
