Support and resistance & the technical analysis theory

Investing in the stock market can be a highly profitable venture if you know what you are doing. Several theories and strategies have been developed since stock trading began that include different ways of predicting future price movements of stocks and assessing the intrinsic worth of a company. One of such theories is the technical analysis theory.
The technical analysis theory proceeds from the assumption that the stock market, i.e., the buyers and sellers, behave in predictable ways. This can help a stock trader assess past data of a stock's price movement to determine the right time to enter a trade and the trading strategy that would prove most fruitful under the circumstances.
Support and resistance levels
If you are looking for stock market tips, one of the most important concepts that you can grasp is the theory that stock prices bounce between certain price levels known as support and resistance. Prices tend to reverse direction at these predetermined price levels, reversing and rising when they touch the support price level and reversing and falling when they reach the resistance price level.
The more times a stock's price touches a certain price level and reverses its direction, the stronger those support and resistance levels are said to become.
Support and resistance & round numbers
It has been observed that prices tend to reverse direction at round numbers such as 10, 20, 35, 50, 100 and 1,000. Buyers tend to purchase stocks when the price falls to a round number, causing the buying pressure to increase and preventing the price from falling further. Sellers tend to sell stocks when the price reaches a round number, causing an increase in selling pressure and preventing the price from rising upward.
Stock trading strategies
Stock traders can use the support and resistance levels as stock market tips for when to enter a position and whether to enter in a long position or a short position.
A trader entering in a long position, that is, buying stocks hoping for the price to appreciate, can benefit from observing the past movement of the stock price and determining the support level. After ascertaining the support of a stock, a long trader can enter into a long position at the support level to avail the stocks at the lowest price and be guaranteed the most profit.

A stock trader who'd like to sell short, that is, selling borrowed stocks and buying them back when the stock price falls, thus making a profit on the trade, would benefit from buying stocks close to resistance.
Why do prices rise after reaching the support level?
Stock market tips to invest and trade are recalled well when you thoroughly understand the reasoning behind these concepts. Let us try to understand the different ideologies that prompt stock traders to buy a particular stock at a support level:

• A trader having entered the market in a long position may feel inclined to buy more stocks when they see the price rising upwards of the support level. Hence, they'd wait for stocks to fall back to the support level in order to invest in more potentially profitable stocks.
  

• Aspiring long position traders are likely to enter in a long position at the support price level as well.
  

• Traders on the short side would realize that they are on the wrong side of the market and would seek to exit the trade by buying sold stocks back at support to incur the least loss.
  

• Long position traders who'd have previously gotten out of their positions would want to enter the trade again when they see the prices rising upwards of support.
  

Thus, the combined buying pressure at the support level causes prices to increase till they are too high to warrant further increase. The prices then hit the resistance level. The buying and selling equation keeps the prices of a stock within this range till the trend reverses because of a reversal in buying and selling demands.
Stock market tips for trading stocks by reviewing their support and resistance levels prove rather effective in ensuring that you make a profitable trade with high returns, if everything goes well.
The nitty-gritty of stock trading can be explored further by referring to sites such as the OTC Bully (www.otcbully.com) This site provides extensive stock trading tutorials and educational resources to those looking for stock market tips or to learn stock trading from scratch.