This signals that the forces of supply and demand are evenly balanced. A trading range is a period of time when prices move within a relatively tight range.

Trading ranges can play an important role in determining whether support and resistance function as turning points or continuation patterns. When this supply was exhausted, the demand was able to overpower supply and advance above resistance at 18. When the stock rebounded to 18, many of the green-oval-bulls probably took the opportunity to sell and “escape” with little to no loss. This left a supply overhang (commonly known as resistance) around 18. When the price declined below 18 and fell to around 14, many of these (now unhappy) bulls were probably still holding the stock. Therefore, there were a lot of bullish buyers of the stock around 18. Where does this overhead supply come from? Demand was obviously increasing around 18 from Oct-98 to Mar-99 (green oval). When the stock rebounded (red oval), there was still overhead supply at 18 and resistance was met from Jun-99 to Oct-99. PeopleSoft found support at 18 from Oct-98 to Jan-99 (green oval), but broke below support in Mar-99 as the bears overpowered the bulls. In the above example from PeopleSoft (PSFT), we can see that support can turn into resistance and then back into support. After the second test of support at 935, this level is well established. The stock subsequently rose to 1150, but then fell back to test support at 935. As the stock remained above resistance, 935 was established as a new support level. In this example of the NASDAQ 100 Index ($NDX), the stock broke resistance at 935 in May-97 and traded just above this resistance level for over a month. The breakout above resistance proves that the forces of demand have overwhelmed the forces of supply if the price returns to this level, there is likely to be an increase in demand and support will be found. As the price advances above resistance, it signals changes in supply and demand.

The other turn of the coin is resistance turning into support. Therefore, if the price returns to this level, there is likely to be an increase in supply, and hence resistance. The break of support signals that the forces of supply have overcome the forces of demand. Once the price breaks below a support level, the broken support level can turn into resistance. The stock subsequently traded up to 42.5 two more times after that and failed to surpass resistance both times.Īnother principle of technical analysis stipulates that support can turn into resistance and vice versa. When the stock failed to advance past 42.5, the resistance level was confirmed. From the October lows, the stock advanced to the new support-turned-resistance level around 42.5. After a support level is broken, it can turn into a resistance level. Resistance was first established by the September support break at 42.5. Finally, in February, the stock again returned to the support scene and formed a low around 32 1/2.Īfter each bounce off support, the stock traded all the way up to resistance. In December, the stock returned to support in the mid-thirties and formed a low around 33. Support was established with the October low around 31. The above chart for Halliburton (HAL) shows a large trading range between Dec-99 and Mar-00. Support can be established with the previous reaction lows, while resistance can be established by using the previous reaction highs.

Go bears hand signal