What do I mean by price support when talking about a stock?
Think about support as a price at which people have shown a willingness to buy the stock. Prices of a stock are under constant battle between buyers and sellers. People think a stock is worth a different price based on all sorts of information, how much sales they have, or a new product or the economy. This battle shows up in the price of a stock.
When a price of a stock declines and than rises from that price, that low represents Price Support. It is the price where enough buyers ‘beat’ the sellers and the price went higher because there were more people willing to buy the stock at that price than there were sellers, so the price rises.
In the example of Exxon Mobile, a gas company we are all familiar with, you can see where the green arrows are and those arrows represent price support. you can see after the stock rises from that price, when it returns to that price there is often, not always, another rise in price, because there is a prior history of buyers willing to buy the stock at that price.
Buying stocks at price support can often be a good strategy. Of course, the more the support price is tested, the more likely it is to eventually fail as can be also seen in the chart above when the price plummets.
But again, after that drop, new price support is created as you can see on the arrows again.
This cycle repeats over and over and it is present in all stocks from Nike to Tesla or any other company that you may be interested in investing.
Key lessons for Review-
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