What Is a Zone of Support?

A zone of support refers to a price zone reached when a security's price has fallen to a predicted low, known as a support level.

Understanding a Zone of Support

A zone of support generally shows an area of price lows that the security has not previously easily moved beneath. The zone of support typically occurs around a support 澳洲幸运5官方开奖结果体彩网:trendline. While it can be a finite point on a tec🐭hnical chart, continuous trading of a security keeps the support trendline's price dynam♏ic.

Traders typically use 澳洲幸运5官方开奖结果体彩网:technical analysis to identify a zone of support. The zone of support on a chart shows a lower💙 boundary that the stock has not previously broken through. At the support level, supply outweighs demand and volume is usually low.

A zone of support can provide profitable areas for traders. Similar to 澳洲幸运5官方开奖结果体彩网:zones of resistance, these areas present an opportunity for a reversal. As such, traders can use a variety of different 澳洲幸运5官方开奖结果体彩网:technical analysis patterns to id🐓entify these zones for profitable trꦯading opportunities.

Envelope channels are a popular charting technique that allows a trader to draw continuous support and resistance boundaries around a security’s moving price. The 澳洲幸运5官方开奖结果体彩网:Bollinger Band® tool is one of the most common envelope channels used by traders. This indicator draws support and resistance trendlines two standard deviations above and below a security price's 澳洲幸运5官方开奖结果体彩网:moving average. Other popular envelope channels that incorporate support and resistance boundaries include 澳洲幸运5官方开奖结果体彩网:Keltner Channels and 澳洲幸运5官方开奖结果体彩网:Donchian Channels.

Traders can also use shorter-term trendlines to draw tighter channels at a security's 澳洲幸运5官方开奖结果体彩网:peak and trough levels. These channels are known as asce꧋nding, descending, o🙈r horizontal channels and can help identify a zone of support.

Support zone areas can be subjective. They sit around a support trendline, but the price action in this area can be volatile. Market pricing mechanisms and the use of similar charting techniques by other traders can make trading somewhat choppy in a support zone.

To identify trading indicators in the support zone, there are a few defined systems traders can use. One is 澳洲幸运5官方开奖结果体彩网:Fibonacci Retracement. This methodology is built around ascending, descending, and sideways channels. The technique draws parameters b🉐y percentages, from 0% at the support boundary to 100% at the resistance boundary. Intermediary lines drawn through the charting pattern are available to help a trader better identify zones for trading.

Advanced 澳洲幸运5官方开奖结果体彩网:technical analysis charting 👍software c𓂃an also help a trader to draw support zones on a technical analysis candlestick chart. These software programs typically include support and resistance zones with varying color schemes to represent the strength of the support signals. Traders can usually customize the parameters for support in the charting software based on their prefer𝕴ences.

Traders typically watch support zone activity closely as it can be profitable for identifying a reversal or further downside. If a trader believes that a security's price will rebound from the support zone, then the area can be a good place to buy to benefit from price increases. If the trader finds that the price seems likely to continue its downtrend, then selling or 澳洲幸运5官方开奖结果体彩网:short-selling positions would be the most profitable 🍸course of action.

Zone of Support Example

Adding two horizontal trendlines to the Campbell Soup Company (CPB) chart below shows a clear zone of support between $26.50 and $27.50. The two trendlines connect significant peaks and troughs over the past twelve months of price action. Traders can watch the zone of support area for a potential upside reversal or look for a 澳洲幸运5官方开奖结果体彩网:breakdown that would indicate downside 澳洲幸运5官方开奖结果体彩网:continuation. ༒In either case, the zone of support provides a higher probability area from which to trade, due to the increased level of interest in this area from market participants.