Lian Beng - Sitting on Triple Top Reversal Confirmation Break Line

3 black crows formation resting on breakline for triple top reversal confirmation.

Rebounce from this breakline will invalidate Triple Top Reversal.

If support is broken price will move towards 200EMA into the 57 - 52 cents support zone.

First Resources Hourly Chart Bullish Engulfing Pattern

Bullish Engulfing pattern formed at $1.54 - $1.53 mid candle support.

Learning to Invest in the Stock Market Using the Bullish Engulfing Signal

Learning to invest in the stock market is a difficult process. There are multitudes of sources that will give their opinions on how to invest. For the person that is just learning to invest in the stock market, the massive amount of information can be overwhelming. Becoming educated in investing should be narrowed down to one basic premise. What investment programs should I utilize that fit my investment risk factors? Learning to invest in the stock market not only includes finding an investment program that fits ones investment nature, but also finding a program that produces the results an investor expects.

Utilizing candlestick signals makes learning to invest in a stock market much easier to understand. The 12 major signals found in candlestick analysis not only reveal high probability reversal situations but understanding the psychology that formed those signals makes understanding why reversals occur much easier to comprehend. One of the fastest and easiest processes for learning to invest in the stock market is learning the candlestick signals. Each major signal provides an immense amount of information.

A Bullish Engulfing signal is one of the major signals. When the elements out of a Bullish Engulfing signal are broken down, an investor can clearly understand what was going on in investor sentiment to cause a reversal. 400 years of observations from Japanese Rice traders has recognized the Bullish Engulfing signal as a very high probability reversal signal.

BULLISH ENGULFING PATTERN

Description

The Engulfing pattern is a major reversal pattern comprised of two opposite colored bodies. The Bullish Engulfing Pattern formed after a downtrend. It opens lower that the previous day’s close and closes higher than the previous day’s open. Thus, the white candle completely engulfs the previous day’s black candle.

Criteria

1. The body of the second day completely engulfs the body of the first day. Shadows are not a consideration.

2. Prices have been in a definable down trend, even if it has been short term.

3. The body of the second candle is opposite color of the first candle, the first candle being the color of the previous trend. The exception to this rule is when the engulfed body is a doji or an extremely small body.

Signal Enhancements

A large body engulfing a small body. The previous day shows the trend was running out of steam. The large body shows that the new direction has started with good force.

When the engulfing pattern occurs after a fast move down, there will be less supply of stock to slow down the reversal move. A fast move makes a stock price over extended and increases the potential for profit taking.

Large volume on the engulfing day increases the chances that a blowoff day has occurred.
The engulfing body engulfs the body and the shadows of the previous day, the reversal has a greater probability of working.

The greater the open gaps down from the previous close, the greater the probability of a strong reversal.

Pattern Psychology

After a downtrend has been in effect, the price opens lower than where it closed the previous day. Before the end of the day, the buyers have taken over and moved the price above where it opened the day before. The emotional psychology of the trend has now been altered.

http://www.candlestickforum.com/PPF/Parameters/16_441_/candlestick.asp

Range-Bound Trading

A trading strategy that identifies stocks trading in channels. By finding major support and resistance levels with technical analysis, a trend trader buys stocks at the lower level of support (bottom of the channel) and sells them near resistance (top of the channel).

The trader may repeat the process of buying at support and selling at resistance many times until the stock breaks out of the channel. The upper boundary of the channel is shown by a trendline that connects the points representing a stock's highs over a given time period. The lower boundary of the channel is identified by connecting the points representing a stock's lows. The downside of this strategy is that when a stock breaks out of the channel, it usually experiences a large price movement in the direction of the breakout. If the breakout direction is not favorable for the trader's position, he or she could lose badly.

http://www.investopedia.com/terms/r/rangeboundtrading.asp

First Resources 5 mins chart Range Trading until Breakout

Trading between upper resistance zone $1.70 - $1.67 and lower support zone $1.58 - $1.56.

Monitor 200EMA.

Monitor breakout direction.

Lian Beng - Triple Top Reversal or more upside continuation

Monitor 65.5 cents support line.

Breakdown below 65.5 cents confirms Triple Top Reversal.

Triple Top Reversal

The triple top is a reversal pattern made up of three equal highs followed by a break below support. In contrast to the triple bottom, triple tops usually form over a shorter time frame and typically range from 3 to 6 months. Generally speaking, bottoms take longer to form than tops. We will first examine the individual parts of the pattern and then look at an example.

Prior Trend:

With any reversal pattern, there should be an existing trend to reverse. In the case of the triple top, an uptrend or long trading range should be in place. Sometimes there will be a definitive uptrend to reverse. Other times the uptrend will fade and become many months of sideways trading.

Three Highs:

All three highs should be reasonable equal, well spaced and mark significant turning points. The highs do not have to be exactly equal, but should be reasonably equivalent to each other.

Volume:

As the triple top develops, overall volume levels usually decline. Volume sometimes increases near the highs. After the third high, an expansion of volume on the subsequent decline and at the support break greatly reinforces the soundness of the pattern.

Support Break:

As with many other reversal patterns, the triple top is not complete until a support break. The lowest point of the formation, which would be the lowest of the intermittent lows, marks this key support level.

Support Turns Resistance:

Broken support becomes potential resistance, and there is sometimes a test of this newfound resistance level with a subsequent reaction rally.

Price Target:

The distance from the support break to highs can be measured and subtracted from the support break for a price target. The longer the pattern develops, the more significant is the ultimate break. Triple tops that are 6 or more months old represent major tops and a price target is less likely to be effective.

Throughout the development of the triple top, it can start to resemble a number of patterns. Before the third high forms, the pattern may look like a double top. Three equal highs can also be found in an ascending triangle or rectangle. Of these patterns mentioned, only the ascending triangle has bullish overtones; the others are neutral until a break occurs. In this same vein, the triple top should also be treated as a neutral pattern until a breakout occurs. The inability to break above resistance is bearish, but the bears have not won the battle until support is broken. Volume on the last decline off resistance can sometimes yield a clue. If there is a sharp increase in volume and momentum, then the chances of a support break increase.

When looking for patterns, it is important to keep in mind that technical analysis is more art and less science. Pattern interpretations should be fairly specific, but not overly exacting as to obstruct the spirit of the pattern. A pattern may not fit the description to the letter, but that should not detract from its robustness. For example: it can be difficult to find a triple top with three highs that are exactly equal. However, if the highs are within reasonable proximity and other aspects of the technical analysis picture jibe, it would embody the spirit of a triple top. The spirit is three attempts at resistance, followed by a breakdown below support, with volume confirmation

.http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:triple_top_reversal

Moving Average Convergence Divergence (MACD)

A trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.







There are three common methods used to interpret the MACD:

1. Crossovers - As shown in the chart above, when the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Many traders wait for a confirmed cross above the signal line before entering into a position to avoid getting getting "faked out" or entering into a position too early, as shown by the first arrow.

2. Divergence - When the security price diverges from the MACD. It signals the end of the current trend.

3. Dramatic rise - When the MACD rises dramatically - that is, the shorter moving average pulls away from the longer-term moving average - it is a signal that the security is overbought and will soon return to normal levels.

Traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero. As you can see from the chart above, the zero line often acts as an area of support and resistance for the indicator.

http://www.investopedia.com/terms/m/macd.asp

First Resources 5 mins chart trendline and 200EMA

Major support $1.56 - $1.58
Breakout above down trendline - price movement towards 200EMA
Monitor downtrend line and 200EMA

First Resources 5 mins chart technical analysis 20080111 1229 PM

Breakdown from trading range lower support at $1.70

Major support $1.56 - $1.58

Monitor down trendline

Trend Lines

Technical analysis is built on the assumption that prices trend. Trend Lines are an important tool in technical analysis for both trend identification and confirmation. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. Many of the principles applicable to support and resistance levels can be applied to trend lines as well. It is important that you understand all of the concepts presented in our Support and Resistance article before you continue.

Uptrend Line

An uptrend line has a positive slope and is formed by connecting two or more low points. The second low must be higher than the first for the line to have a positive slope. Uptrend lines act as support and indicate that net-demand (demand less supply) is increasing even as the price rises. A rising price combined with increasing demand is very bullish, and shows a strong determination on the part of the buyers. As long as prices remain above the trend line, the uptrend is considered solid and intact. A break below the uptrend line indicates that net-demand has weakened and a change in trend could be imminent.

Downtrend Line

A downtrend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Downtrend lines act as resistance, and indicate that net-supply (supply less demand) is increasing even as the price declines. A declining price combined with increasing supply is very bearish, and shows the strong resolve of the sellers. As long as prices remain below the downtrend line, the downtrend is solid and intact. A break above the downtrend line indicates that net-supply is decreasing and that a change of trend could be imminent.For a detailed explanation of trend changes, which are different than just trend line breaks, please see our article on the Dow Theory.

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:trend_lines

First Resources 5 mins chart support and resistance 20080110 505 pm

Trading Zone $1.78 - $1.70
Monitor breakout direction from this trading range.
Major support zone $1.58 - $1.56

Buy at the support level and sell at the resistance level

Support and Resistance

One of the most-common and best-known trading strategies is this: "Buy at the support level and sell at the resistance level." The significance of the support level can be understood this way: Imagine that on a given day, for some particular reason (or by sheer chance) a stock is traded very heavily at a certain price level. Also imagine that many traders remember this price level because they bought or sold the stock at this level. Next, suppose that the stock price first moves up away from this level and, later on, (for some reason or no reason) the stock price trades back again to the earlier level. Traders who previously bought the stock and sold it for a profit would likely buy it again at this level. Those who previously sold the stock at this level and missed the recent run-up would have a chance to buy it back. Such buying activities usually slow down the drop and may reverse the momentum. At least, the stock price may take a rest at this level before moving in a new direction. We can then say that the stock price has hit some "support level," by which we suppose that it most likely will not quickly drop through it. The sensible trading strategy is, of course, to buy the stock near this support level, monitor it closely, and sell it to cut losses if it falls meaningfully lower than the support level. If the support level does prevent the stock price from falling and it starts to bounce back, the trader can make a nice profit that is usually much larger (!) than the amount of loss incurred if the trade turned south and loss had to be cut.

"Resistance Level" is just the opposite. Here, the strategy is to short sell the stock near the resistance level, monitor it closely, and buy it to cut loss if it breaks meaningfully higher than the resistance level. If the resistance level indeed prevents the stock price from going up and it starts to bounce back down, the trader can make a nice (!) profit, usually much larger than the amount of loss he would incur if the trade turned against him (in which case, he would have to buy to cover).

http://www.tradetrek.com/Education/Day_Trading/support_resistance.asp

Trading Strategy on tests of Resistance

Trading Strategy on tests of Resistance(Same logic inverted applies to tests of Support).



The correct trading strategy therefore includes alternatives based on what happens next:

First, place a sell-stop below the next low which, if hit, will exit any existing long position and enter a small short position (small because the initial stop on the new position would be above the recent high - ie a significant distance away from the entry price). This initial stop protects against serious loss in the event that the market continues straight down, and turns a profit if it goes far enough.Then watch which of the following occurs and act accordingly:

http://www.marketskillbuilder.com/resist.htm

First Resources 5 mins chart short term support zones 20080110 1010AM

Key 5 mins chart support zones
Previous resistance at $1.86 is now the new support
Support $1.81 - $1.80
Doji tail to Dragonfly tail support $1.77 - $1.76
Monitor 20EMA support

Moving Averages Support Resistance

Most technical traders incorporate the power of various technical indicators, such as moving averages, to aid in predicting future short-term momentum, but these traders never fully realize the ability these tools have for identifying levels of support and resistance. As you can see from the chart below, a moving average is a constantly changing line that smooths out past price data while also allowing the trader to identify support and resistance. Notice how the price of the asset finds support at the moving average when the trend is up, and how it acts as resistance when the trend is down. Most traders will experiment with different time periods in their moving averages so that they can find the one that works best for this specific task. (To read more, see Exploring Oscillators And Indicators and Trading Psychology And Technical Indicators.)

http://www.investopedia.com/articles/technical/061801.asp

First Resources 5 mins chart support and resistance 20080109 1705HR

Key 5 mins chart support and resistance zones

Resistance $1.86 - $1.85

Support $1.81 - $1.80

Doji tail to Dragonfly tail support $1.77 - $1.76

Doji Top to Dragonfly Tail support $1.73

Moving Average Bounce

Moving averages smooth the price, so that short term fluctuations are removed, and the overall direction is shown. When the price experiences a strong move, it will have a tendency to retrace back to the moving average, but then continue the original move, and it is this bounce that is used by the moving average bounce trading system.





The default trade uses a 1 to 5 minute OHLC (Open, High, Low, and Close) bar chart, and a 34 bar exponential moving average of the typical price (HLC average). Both the chart timeframe, and the exponential moving average length, can be adjusted to suit different markets.





Wait for Price and Moving Average to Touch



Wait for the price to touch the moving average, which happens when the price trades at the current moving average price.



For a long trade, the previous price bars should have been making lower lows as the price approached the moving average, and for a short trade, the previous price bars should have been making higher highs as the price approached the moving average. There is no specific number of bars that need to make consecutive lower lows or higher highs, but I recommend at least 3 bars.In the chart shown below, the price touches the moving average on the fourth bar to make a consecutive lower low.

The moving average bounce trading system uses a short term timeframe and a single exponential moving average, and trades the price moving away from, reversing, and then bouncing off of the moving average.

Enter your Trade

Enter your trade when the high (or low) of the first price bar that fails to make a new low (or high) is broken.

The following list shows the steps required for both long and short entries :

Long Trade

Price bars make lower lowsPrice bar touches the moving averageSubsequent price bar fails to make a new lowSubsequent price bar breaks the high of the previous price bar

Short Trade

Price bars make higher highsPrice bar touches the moving averageSubsequent price bar fails to make a new highSubsequent price bar breaks the low of the previous price bar

In the trade shown on the chart below, the bar that failed to make a new low is shown in white, and the entry is shown by the arrow. The entry is at 1.2995, with a target of 1.3005, and a stop loss of 1.2990.

There is no default order type for the moving average bounce trade entry, but for the EUR the recommendation is a limit order.

As soon as your entry order has been filled, make sure that your trading software has placed your target and stop loss orders, or place them manually if necessary.

There is no default order type for either the target or stop loss, but for the EUR (and usually for all markets), the recommendation is a limit order for the target, and a stop order for the stop loss

There is no default order type for either the target or stop loss, but for the EUR (and usually for all markets), the recommendation is a limit order for the target, and a stop order for the stop loss

Wait for your Trade to Exit

Wait for the price to trade at your target or at your stop loss, and for either your target or stop loss order to get filled. The moving average bounce trade can take anywhere from a few minutes to a couple of hours to reach your target or stop loss, and the trade does not use any target or stop loss adjustments (except moving the stop loss to break even at a suitable time).The targets that are shown on the chart are at 1.3005 (10 ticks), 1.3015 (20 ticks), and 1.3025 (30 ticks), all of which were filled by this trade.

If your target order has been filled, then your trade has been a winning trade. If your stop loss order has been filled, then your trade has been a losing trade.

http://daytrading.about.com/od/tradingsystems/ss/MovingAverageBo.htm

First Resources 5 mins chart support and resistance 20080109 1453HRS

Strong rally from 200EMA support at $1.58
20EMA support tested twice at $1.65 and $1.70
Monitor 20EMA
Doji tail support $1.76
Doji Top to Dragonfly Tail support $1.73

The Art of Candlestick Charting

The candlestick techniques we use today originated in the style of technical charting used by the Japanese for over 100 years before the West developed the bar and point-and-figure analysis systems. In the 1700s a Japanese man named Homma, a trader in the futures market, discovered that, although there was a link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of the traders. He understood that when emotions played into the equation a vast difference between the value and the price of rice occurred. This difference between the value and the price is as applicable to stocks today as it was to rice in Japan centuries ago. The principles established by Homma are the basis for the candlestick chart analysis, which is used to measure market emotions towards a stock.

This charting technique has become very popular among traders. One reason is that the charts reflect only short-term outlooks--sometimes lasting less than eight to 10 trading sessions. Candlestick charting is a very complex and sometimes difficult system to understand, but in this four-part series, we take go inside the more common ways to construct and read candlestick patterns. (For our other candlestick charting articles, see our Technical Analysis 101 archives.)

http://www.investopedia.com/articles/technical/02/121702.asp

First Resources 5 mins chart support and resistance 20080108 505 pm

Key short term resistance and support
Double Top Resistance zone $1.71 - $1.70
Range support zone $1.61 - $1.60
Gap to Gap Filled support $1.56
Monitor 200EMA support

Technical analysis

"Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.".[1] In its purest form, technical analysis considers only the actual price behavior of the market or instrument, based on the premise that price reflects all relevant factors before an investor becomes aware of them through other channels.
Technical analysis is widely used among traders and financial professionals, and some studies say its use is more widespread than is "fundamental" analysis in the foreign exchange market.[2][3] Academics such as Eugene Fama say the evidence for technical analysis is sparse and is refuted by the efficient market hypothesis,[4][5] yet some Federal Reserve and academic studies include evidence that supports technical analysis.[6][7][8] MIT finance professor Andrew Lo argues that "several academic studies suggest that…technical analysis may well be an effective means for extracting useful information from market prices."[9] Burton Malkiel argues, "Technical analysis is anathema to the academic world." He further argues that under the weak form of the efficient market hypothesis, "...you cannot predict future stock prices from past stock prices."[10]

Technical analysts (or technicians) identify non-random price patterns and trends in financial markets and attempt to exploit those patterns [11] While technicians use various methods and tools, the study of price charts is primary. Technicians especially search for archetypal patterns, such as the well-known head and shoulders reversal pattern, and also study such indicators as price, volume, and moving averages of the price. Many technical analysts also follow indicators of investor psychology (market sentiment).

Technicians seek to forecast price movements such that large gains from successful trades exceed more numerous but smaller losing trades, producing positive returns in the long run through proper risk control and money management.

There are several schools of technical analysis. Adherents of different schools (for example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other approaches, yet many traders combine elements from more than one school. Technical analysts use judgment gained from experience to decide which pattern a particular instrument reflects at a given time, and what the interpretation of that pattern should be. Technical analysts may disagree among themselves over the interpretation of a given chart.

Technical analysis is frequently contrasted with fundamental analysis, the study of economic factors that some analysts say can influence prices in financial markets. Pure technical analysis holds that prices already reflect all such influences before investors are aware of them, hence the study of price action alone. Some traders use technical or fundamental analysis exclusively, while others use both types to make trading decisions.

http://en.wikipedia.org/wiki/Technical_analysis

First Resources

First Resources is one of the largest private sector producers of crude palm oil in Indonesia. Its primary business activities are cultivating oil palms, harvesting the fresh fruit bunches from those trees and processing crude palm oil and palm kernel, which it sells in Indonesia and internationall. All of its operations and assets, consisting of 13 oil palm plantations and six palm oil mills, are located in Riau province, Sumatra, Indonesia.

Its palm oil plantations have grown significantly since it started operations in 1992. As of June 30, 2007, the 10 operating companies in the group controlled 13 oil palm plantations that covered 134,760 hectares. In July 2007, it acquired 3 additional plantations with an aggregate landbank of approximately 45,000 hectares. In addition, it acquired approximately 4,520 hectares of Hak Guna Usaha land from PT Sarpindo Graha in July 2007. It has approximately 80,526 hectares of land under cultivation as of June 30, 2007. First Resources planted substantially all of its oil palm trees between 1993 and 1998, and the percentage of mature oil palm trees under cultivation was 72.2% as of 30 June 2007, at which date it had 58,148 hectares of mature and 22,378 hectares of immature oil palm trees under cultivation.

Oil palm trees require approximately three years to mature and do not reach peak production of fresh fruit bunches until 8 years after planting. Their peak production years range from their 8th year until their 17th year, after which production of fruit gradually declines. As of June 30, 2007, the weighted average age of its plantations was about 7.8 years, and the substantial majority of palm trees are entering into prime production age. Production of fruit bunches increased from 440,550 tons in 2001 to 1,120,765 tons in 2006, an average yield of about 20 tons per hectare.

First Resources built its first palm oil mill in 1998 as its trees began to mature. It built the next 3 mills between 2001 and 2004, and its last 2 mills in 2005. In addition, between 2003 and 2005, it increased milling capacity of the first 3 mills. The 6 palm oil mills have a total annual processing capacity of 2.1 million tons of fresh fruit bunches (equivalent to 400,000 tons of crude palm oil and 90,000 tons of palm kernel per year). Its crude palm oil production increased from 83,888 tons in 2001 to 227,286 tons in 2006, with an average oil extraction rate of 21.9%.

http://www.wallstraits.com/IntelliSort/stockreport.php?code=EB5

KTL Global 5 mins chart short term support zones 20080108 505 pm

Short term support zones are :

Doji star tail support 68 cents
Gap support 66.5 cents
Dragonfly tail support 64.5 cents
200 EMA support around 66 - 66.5 cents

First Resources 5 mins chart short term support zones 080108 1138

New updated short term support zones are :

Tail support $1.65
Range Gap support zone $1.62 - $1.60
Gap to Gap Filled Support $1.56
Trailing stop are raise as price continues to move up

Support and Resistance Levels

The Basics



Most experienced traders will be able to tell many stories about how certain price levels tend to prevent traders from pushing the price of an underlying asset in a certain direction. For example, assume that Jim was holding a position in Amazon.com (AMZN) stock between March and November 2006 and that he was expecting the value of the shares to increase. Let's imagine that Jim notices that the price fails to get above $39 several times over the past several months, even though it has gotten very close to moving above it. In this case, traders would call the price level near $39 a level of resistance. As you can see from the chart above, resistance levels are also regarded as a ceiling because these price levels prevent the market from moving prices upward.



On the other side of the coin, we have price levels that are known as support. This terminology refers to prices on a chart that tend to act as a floor by preventing the price of an asset from being pushed downward. As you can see from the chart below, the ability to identify a level of support can also coincide with a good buying opportunity because this is generally the area where market participants see good value and start to push prices higher again.

http://www.investopedia.com/articles/technical/061801.asp

Support & Resistance Basics

The concepts of support and resistance are undoubtedly two of the most highly discussed attributes of technical analysis and they are often regarded as a subject that is complex by those who are just learning to trade. This article will attempt to clarify the complexity surrounding these concepts by focusing on the basics of what traders need to know. You'll learn that these terms are used by traders to refer to price levels on charts that tend to act as barriers from preventing the price of an asset from getting pushed in a certain direction.At first the explanation and idea behind identifying these levels seems easy, but as you'll find out, support and resistance can come in various forms and it is much more difficult to master than it first appears. (To learn more, read Analyzing Chart Patterns and Basics Of Technical Analysis.)

http://www.investopedia.com/articles/technical/061801.asp

First Resources 5 mins chart short term support zones 080107 1228PM

Key short term supports zone are at $1.60 range support, $1.56 gap support and $1.52 tail support. Using these support zones as short term trailing stops to lock in my profits if they are broken.

Support and Resistance

Support and resistance represent key junctures where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and buying. These terms are used interchangeably throughout this and other articles. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as bulls and bears slug it out for control.

What Is Support?

Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.Support does not always hold and a break below support signals that the bears have won out over the bulls. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or below the previous low. Once support is broken, another support level will have to be established at a lower level.

Where Is Support Established?

Support levels are usually below the current price, but it is not uncommon for a security to trade at or near support. Technical analysis is not an exact science and it is sometimes difficult to set exact support levels. In addition, price movements can be volatile and dip below support briefly. Sometimes it does not seem logical to consider a support level broken if the price closes 1/8 below the established support level. For this reason, some traders and investors establish support zones.

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:support_and_resistance