Just an illustration here…correct me if I am wrong
I tried including as much info as I could into the chart but this is just an idea of how supports and resistances work
If 50 day moving avg line is above 200 day moving avg line
then it is considered bullish and these lines act as support as well as
resistance for stocks ,
The two lines crossing over each other could be bullish or
bearish depending upon which way the 50day moving avg line crosses
Strong support is usually there when a stock spends quite
some time in that area without going down from that level-means buyers are
willing to buy there, specially when it tests that level to the downside
multiple times and does not go through to the downside.
Same goes for resistance –means buyers are not willing to
buy above that price
This does not necessarily tell us how its gonna turn out
after a month or even after a week but it can definitely tell us where the market is headed in a
couple of days (near term) .
And it works because Automated Computers trade on similar models, and a bunch of people follow technicals...