In investing, the support level is the price that a stock has dropped to or close to, but has been unable to fall below with any momentum. After nearing or hitting this level, it tends to turn around.
The following is some information on what support is, and on how it can be used for wise investing.
What is Support in Investing?
Support (the opposite of resistance) in stock trading is a price level that a security comes close to or reaches, but has a hard time dropping below. It essentially looks like a price that supports the stock by keeping it from dropping low.
This level is often maintained because traders buy into stock once it drops down, causing its price to move up. When a stock breaks through its support level, it can be a good time to sell to cut loss, as the downward momentum that pushed it below the mark that it had been unable to decrease from in the past could carry the price even further down.
When to Buy and Sell Based on Support
The support level for stock can indicate a time to buy or sell. When a clear cut mark that a security's price has been able to break and move down from can be established, then a stock's breaking below this price, or rebounding from it can indicate times to sell to cut loss, or buy into stock as it rises after falling to the support, respectively. Free charts that users at discount trade sites like E-Trade, Scottrade, TradeKing, and TD Ameritrade can use will help investors realize support levels for stock.
When an established support level in investing can be identified for a security, the stock's dropping to that point and then turning around can mark a time to buy into it, particularly if it commonly rises up after dropping to the support price. Checking for any positive news reports that can affect company stock can really indicate times for a great buy order, as when price drops to its lowest trading price and then turns around and begins increasing, any investor will want shares if it rises enough to earn profits in selling later if a buy is activated early in its rise.
Conversely, if price actually drops below the support level, it can be experiencing a downtrend strong enough to pull the price down further. If price drops below the support and shows no signs of turning around, then it is best to unload shares to cut loss. A protective stop order can be set to do this before the price actually drops below the support, which will then trigger a sale if it does push through this low mark and continue decreasing in price.
Thomas Wyatt - Tom Wyatt grew up in Virginia. He has been interested in the outdoors (fishing, birding, camping, and other such activities) since he was ...
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