What is Support Line?

435 reads · Last updated: December 5, 2024

Support line is a price point that is difficult for stock prices to fall below when they are falling. This price point is usually a low point or an important support level in past stock trading. When the stock price falls, investors can judge whether they should continue to hold or sell the stock based on this price point.

Definition

A support line is a price level in a declining stock market where the price finds it difficult to fall below. This price point is often a previous low or a significant support level in past trading. When stock prices fall, investors can use this price point to decide whether to continue holding or sell their stocks.

Origin

The concept of the support line originates from the early development of technical analysis, a method of predicting future price movements by analyzing historical price and volume data. The use of support lines can be traced back to the early 20th century when traders began noticing that prices would repeatedly bounce at certain levels.

Categories and Features

Support lines can be categorized into static and dynamic support lines. Static support lines are fixed levels based on historical price data, while dynamic support lines adjust with changing market conditions. The main feature of support lines is that they help investors identify potential buying points and provide the possibility of price rebounds. However, support lines are not absolute, and prices may sometimes break through them, leading to further declines.

Case Studies

A typical case is Apple Inc. during the stock price decline in October 2018, where its stock price formed a support line around $150. Observing this level, many investors chose to buy at this price, causing the stock price to rebound. Another example is Tesla, Inc. during the market adjustment in March 2020, where its stock price formed a support line around $350, after which the price rebounded and continued to rise.

Common Issues

Common issues investors face when using support lines include misjudging the effectiveness of the support line and over-relying on it for trading. Support lines are not absolute, and market sentiment and external factors may cause prices to break through them. Additionally, over-reliance on support lines may lead to ignoring other important market signals.

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