Support and Resistance: Break upwards through resistance is a buy signal

Published 24 October 2019

Stocks that have broken upwards through resistance have continued to rise and have outperformed benchmark. These signals may be valuable input in a decision of whether to buy the stock. When monitoring a stock in terms of potential purchase, the period after a break upwards through resistance will statistically be a good time to buy.  This is in agreement with classic technical analysis theory.

According to technical analysis theory, support and resistance are among the most central concepts in technical analysis and can in theory be used to find good buy and sell levels.

Brudd opp gjennom motstandFigure 1: A break upwards through resistance is a buy signal. This is especially true if volume is also increasing. The sellers who used to be at this level are gone, but there is still buy pressure in the stock.
In theory, a stock that recently broke through a resistance level is expected to continue rising. Buying such stocks allows the investor to enter the stock early in a rising phase. If the stock has risen significantly since the break, a better price can be achieved by waiting for a reaction back.
Please note that stocks in falling trends often give false buy signals on breaks upwards through resistance. When buying such stocks, a long term and strong resistance level should be broken, and the break should be accompanied by increasing volume and positive volume development.

Research results

We have studied return from Norwegian, Swedish, Danish and Finnish stocks following signals triggered by stocks' movements in relation to support and resistance levels in technical price charts. We used support and resistance levels automatically identified in Investtech’s medium term price charts. We had 23 years of data, from 1996 to 2018.

The chart below shows average price development following buy signals from stocks breaking upwards through support identified in Investtech’s medium term price charts. The signals are triggered on day 0. Only days when the exchange is open are included, so 66 days equal approximately three months. The thick blue line shows the development of buy signal stocks. The shaded areas are the standard deviation of the calculations. The thin blue line shows benchmark development in the same period as the buy signal stocks.

Figure 2: Return following buy signals from stocks with break upwards through support identified in Investtech’s medium term price charts. Thick blue line is buy signals, thin blue line is benchmark, the Nordic markets, 1996-2018.

Annualised return (based on 66-day figures) Norway Sweden Denmark Finland Weighted average
Buy signal 18.2 % 16.8 % 16.8 % 9.4 % 16.3 %
Benchmark in same period 12.0 % 12.3 % 10.3 % 5.3 % 11.2 %
Excess return buy signal 6.1 pp 4.5 pp 6.4 pp 4.1 pp 5.1 pp

pp = percentage point

Stocks with buy signal following break upwards through resistance have risen in the following period. The rise in the first three months after signals was on average 4.0 per cent for 43,367 signals from the Nordic markets combined. This is an excess return of 1.2 percentage points compared to benchmark in the same period. Annualised return was 5.1 percentage points.

Statistical t-value is as high as 11.1 for the 66-day figures and suggests statistically significant positive deviation from benchmark development. An excess return of 1.2 percentage points in three months indicates that such signals can be valuable input in an active trading strategy, also when taking commission and other trading costs into account.

Article on sell signals:
Support and Resistance: Break downwards through support is a sell signal

Read the research report here.

 

 


Investeringsaanbevelingen worden gedaan door Investtech.com AS ("Investtech"). Investtech garandeert geen volledigheid of juistheid van de analyses. Eventuele fouten in de aanbevelingen, koop- en verkoopsignalen en mogelijke negatieve gevolgen hiervan zijn geheel het risico van de belegger. Investtech neemt geen enkele verantwoordelijkheid voor verlies, direct of indirect, als gevolg van het gebruik van Investtechs analyses. Meer informatie omtrent Investtechs analyses kunt u vinden op disclaimer.


Investeringsaanbevelingen worden gedaan door Investtech.com AS ("Investtech"). Investtech garandeert geen volledigheid of juistheid van de analyses. Eventuele fouten in de aanbevelingen, koop- en verkoopsignalen en mogelijke negatieve gevolgen hiervan zijn geheel het risico van de belegger. Investtech neemt geen enkele verantwoordelijkheid voor verlies, direct of indirect, als gevolg van het gebruik van Investtechs analyses. Meer informatie omtrent Investtechs analyses kunt u vinden op disclaimer.

Titlex

OK
+

Informasjonskapsler

Vi benytter informasjonskapsler (cookies) for å gi deg en bedre brukeropplevelse. Hvis du fortsetter å bruke nettstedet, aksepterer du dette. Du kan lese mer om vår bruk av informasjonskapsler her.

Investtechs bruk av informasjonskapsler

Når du bruker nettstedet vårt, lagrer vi en informasjonskapsler på enheten din. En slik informasjonskapsel brukes til å gjenkjenne enheten din slik at innstillingene dine fungerer når du bruker nettsidene våre. Informasjonen som lagres er fullstendig anonymisert. Informasjonskapslene slettes automatisk etter en viss tid.

Nødvendige informasjonskapsler

Investtech bruker informasjonskapsler for å sikre grunnleggende funksjoner som sidenavigasjon og språkvalg. Uten slike informasjonskapsler fungerer ikke nettstedet som det skal. Du kan derfor ikke reservere deg mot disse. Hvis du fortsatt ønsker å deaktivere slike informasjonskapsler, kan du gjøre det i din nettlesers innstillinger. Legg til denne nettsiden i listen over nettsteder som ikke har tillatelse til å lagre informasjonskapsler på enheten din.

Informasjonskapsler fra Google

Vi bruker tjenester fra Google Analytics og Google AdWords. Disse registrerer informasjonskapsler på enheten din når du besøker nettstedet vårt. Google registrerer din IP-adresse for å føre statistikk over brukeraktivitet på nettstedet. IP-adressen er anonymisert, slik at vi ikke har noen mulighet til å knytte aktivitetene til en bestemt person. Vi bruker denne statistikken for å hele tiden kunne forbedre oss. Google AdWords samler inn data slik at vår annonsering på andre nettsteder gir bedre resultater. Vi kan ikke spore data til enkeltpersoner.

Tillat informasjonskapsler fra Google