Identification of support and resistance

Support levels indicate where there will probably be a surplus of buyers. Resistance levels indicate where there will probably be a surplus of sellers. Investtech tries to find these levels by looking at how investors think.

Why will an investor buy when the price falls to a certain level? The following applies:

• The investor thinks the stock is fundamentally cheap at this level.
• The investor has seen the stock turn upwards from this level before, without being able to buy. S/he sees that others have made good trades and want to be part of it this time.
• The investor has bought the stock at this level before and seen that it was a good trade. S/he wants to repeat the success and buy again.
• The investor sees that the stock is approaching a round figure, such as 10, 20, or 50. This gives increased attention. It is also easier to think that a stock is cheap if it breaks this kind of level, rather than if it moved between for example 36 and 38 dollars, and one wants to buy early.

The reason investors want to sell a stock can be explained in the same way.

Thus the following are important elements in identifying support and resistance:

• Tops and bottoms in the price chart (pivot points). A in the chart below.
• Price levels where many stocks are traded (high accumulated volume). B in the chart below.
• Round figures. C in the chart below.

Investtech’s systems run mathematical routines in order to find the best support and resistance levels. Potential levels are identified and their strength calculated by, among other things, assessing how many previous tops and bottoms are in the chart near the price levels being considered. The calculation is done anew every day and all the prices in the chart are used as input.