CHART WATCH
SEE THE PICTURE AND TELL THE STORY
EXERCISE- 5
Charts are Graphical representation of price movement of anything over a period of time. The trend depicted by these charts is governed by the forces of demand and supply. ‘History Repeats’ is a dictum that is operative in the markets also. Markets include all kinds, such as Stock, Commodity, Crude, Metals, and Foreign exchange etc.
I have started using names for the patterns in the charts. Watch them with attention.
* To enlarge the chart Double click by keeping the cursor above the chart.
Market Lesson 3 : Buy around ‘Support Line’
What is a ‘Support Line’?
When you drop a ball on the floor it hits the ground and bounces back. The floor here acts as support for the bouncing ball. Similarly in stock market when there is a free fall in the price (comparable to the ball) of a stock, it may stop at one level and bounce back. The imaginary line at which the price stops from falling further is the support line.
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Support line
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Support line is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling lower. Support levels indicate the price, where the most investors believe that prices will move higher.
There is nothing mysterious about support: it is classic equilibrium formed by supply and demand. But investor’s expectation change with the time, and they often do so abruptly. The development of support and resistance levels is probably the most noticeable and reccurring event on price charts. The penetration of support levels can be triggered by fundamental changes that are beyond investor's expectations and control (e.g., changes in earnings, management, competition, Scams, War, Natural calamity, etc.) New expectations lead to new price levels. Also there are support levels which originate due to emotional factors.
The supply line shows the quantity (i.e., the number of shares) that sellers are willing to supply at a given price. When prices increase, the number of sellers also increases as more traders are willing to sell at these higher prices.
In a free market, these lines are continually changing. Investor's expectations change, and so do the prices.
The foundation of most technical analysis tools is rooted in the concept of supply and demand. Price charts for financial instruments give us a superb view of these forces in action.
Note: It is very difficult to catch the exact bottom while buying. That is why I have mentioned it as “Buy around Support Line”.
Observe the following charts where the price is coming down as a water fall. Guess at what price level it will hit the ground and start bouncing.
About the charts: (Dated 24.11.2010)
1. NIFTY Chart – Daily
2. Century Textiles Chart – Diversified
3. Century Enka Chart – Diversified
4. Bombay Dyeing Chart – Textile
FAQ:
1. What is meant by “BOURSE?”
Bourse refers to an organized market.
The Stock Exchange.
2. Who is a “BULL?”
The person who believes that the market
will rise. A "bull" is an investor who buys
stocks, for selling it at a higher price.
3. Who is a “BEAR?”
The person who believes that the market will
decline. A "bear" is an investor who sells his
stocks, and buying it back at a lower price.
4. Who is a “STAG?”
A stag is an investor or speculator who
subscribes to a new issue with the intention
of selling them soon after allotment to
realize a quick profit.
Can we anticipate the line of Support in advance? Is there any method or Model to predict it? To get an answer for these queries you have to wait till we reach the Advanced Technical Analysis Module.
Dr.Felisleo
25.11.2010
