Support and Resistance, Explained for NEPSE

Support and resistance are the price areas where a share has repeatedly stopped falling or stopped rising. They are among the oldest ideas in chart reading, and still among the most practical: they help you decide where to buy, where to take profit and where to admit a trade was wrong.

What they are

• Support is a price area below the current price where buying has stepped in before and stopped a decline.
• Resistance is a price area above the current price where selling has appeared before and capped a rise.

Why should a price remember anything? Because people do. Investors who bought near a level and watched the price fall often sell when it comes back, just to get out even — so old peaks become resistance. Investors who missed a low often buy when the price returns there — so old troughs become support. Round numbers like Rs 500 or Rs 1,000 attract orders for the same reason.

How to find them yourself

1. Look for turning points. Mark the swing highs and swing lows — the peaks and troughs where the price clearly reversed.
2. Find where they cluster. One turning point is an event; three near the same price is a level.
3. Draw zones, not lines. Prices rarely turn at exactly the same rupee. A level is an area a percent or two wide.
4. Prefer recent levels. A level the price respected last month matters more than one from three years ago.
5. Check the volume. A turn on heavy volume shows more conviction than one on a quiet day.

When a level breaks

Levels do break. When a share closes clearly through resistance, that old resistance often becomes the new support, and a broken support often becomes resistance — the same people are now on the other side of the trade. Each test also weakens a level: the orders waiting there get used up, so the fourth test is more likely to break than the first.

How NepseIQ finds them

NepseIQ draws support and resistance automatically, on each stock's page and on the chart, using the same steps a careful chartist would:

• It looks at the last year of daily prices (two years on the weekly chart, all of history on the monthly), adjusted for bonus and right issues so a bonus is never mistaken for a breakdown.
• It finds the turning points, groups those close together into a single level, and scores each level by how many times the price turned there and how recently.
• It shows only the two nearest levels on each side of the current price, skipping any within about 1.2% of the price or of each other, so the chart stays readable and every line means something.

If a share has no clear turning points in that window — a new listing, or a stock in a steady trend — no levels are drawn, rather than inventing some.

Using levels in practice

• Plan, don't predict. A level tells you where the price has reacted before, not that it will react again. Decide in advance what you will do if it holds and if it breaks.
• Place stops beyond levels, not on them. A stop exactly at support is where many others sit too; just beyond the zone is less likely to be triggered by a normal wiggle.
• Size by the normal range. A stock's typical move matters as much as its levels. NepseIQ's Forecast card shows how far a price moves 8 times in 10 over 1, 3 and 5 days; a stop inside that range will be hit often by ordinary noise.
• Remember the 10% limit. On NEPSE a share can gap through a level overnight. Levels are areas of interest, not walls.

Common mistakes

• Drawing too many lines. A chart covered in levels tells you nothing. Keep the few that matter most.
• Using unadjusted charts. A bonus or right issue creates a fake "breakdown" on a raw chart.
• Treating a level as a guarantee. The more obvious a level, the more people act on it — which is why levels sometimes break sharply.

Support and resistance mark where a price has turned before. Use them as zones to plan around — with the stock's normal range in mind — not as promises about where it will turn next.