Zone Of Support

AAA

DEFINITION of 'Zone Of Support'

A price zone in which a stock finds support and begins to trade upward once again. In technical analysis, support occurs not at a finite point, but in a zone. The "density" of the zone of support (how far the price can move down through it) depends on the volume of trading as the price approaches and enters the zone. The higher the volume of trading in the zone of support, the higher the point at which actual support will most likely occur.

INVESTOPEDIA EXPLAINS 'Zone Of Support'

As the price of a security falls toward a zone of support, it is a test: how far the price moves down through the zone will be an important indicator for future attempts to pass through it.

It is important to note that even though higher volume can raise the actual support point within the zone, the chance of the support zone being wiped out is also higher.

When trying to catch the bottom of a retracement, it is imperative that stop-loss orders be used.

RELATED TERMS
  1. Zone Of Resistance

    A price zone in which a stock finds resistance and begins to ...
  2. Trend Analysis

    An aspect of technical analysis that tries to predict the future ...
  3. Retracement

    A temporary reversal in the direction of a stock's price that ...
  4. Reversal

    A change in the direction of a price trend. On a price chart, ...
  5. Support (Support Level)

    The price level which, historically, a stock has had difficulty ...
  6. Range-Bound Trading

    A trading strategy that identifies stocks trading in channels. ...
Related Articles
  1. Support And Resistance Basics
    Active Trading Fundamentals

    Support And Resistance Basics

  2. Trade On Support For The Best Exit Strategy
    Active Trading Fundamentals

    Trade On Support For The Best Exit Strategy

  3. Retracement Or Reversal: Know The Difference
    Options & Futures

    Retracement Or Reversal: Know The Difference

  4. The Psychology Of Support And Resistance ...
    Active Trading Fundamentals

    The Psychology Of Support And Resistance ...

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center