A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to “bounce” off this level rather than break through it. However, once the price has passed this level, even by a small amount, it is likely to continue dropping until it finds another support level.
A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. This means the price is more likely to “bounce” off this level rather than break through it. However, once the price has passed this level, even by a small amount, it is likely that it will continue rising until it finds another resistance level.
To me, this is similar to Head and Shoulders, Moving Averages or Stockastics. While I will use these types of indicators to put a stock on my watchlist, I would never use these as a Buy or Sell trigger.
My preference is always Market Depth. This is what I saw when I pulled up Lihir Gold.
Whenever I’m looking at Market Depth, I always do some very rough math. At the first level (3.28/.29) there are about 2/3 sellers.
At the 2 levels, it roughly even (just as many buyers as sellers), at the 3rd level, its almost 3 times.
This screenshot was taken today at a little after midday.
The next one is the same stock, an hour later:
Ok so a quick look here. At the 1st level, there are over twice as many buyers as sellers. And that story continues all the way down…
So what does tell us? I’m going long LGL!