Understanding Support and Resistance Dynamics: A Case Study of Tata Investment
Support and resistance are key concepts in technical analysis that can provide valuable insights into market trends. In this article, we will explore a real-life example of support and resistance dynamics using the chart of Tata Investment.
The chart analysis begins with the observation that in 2020, Tata Investment reached a top level of around Rs900, just before the COVID crisis hit. The stock then experienced a significant decline, reaching a low of Rs500. However, it subsequently made a recovery and retested the earlier top, which now acted as a level of support.
This phenomenon is a classic example of how a resistance level can become a support level when the price surpasses it. In this case, the level of resistance at Rs900 transitioned into a level of support. The stock then rallied from this support level, climbing to approximately Rs1500-1600 before experiencing a correction.
During this upward movement, Tata Investment also exhibited a consolidation phase near the Rs2800 level. Following this consolidation, the stock made a sharp recovery to even higher levels, reaching around Rs2800 again. Once again, the previous resistance-turned-support level was tested and confirmed.
On September 23, Tata Investment broke through the resistance at Rs2800, signalling a bullish move. However, it later pulled back sharply, returning to the vicinity of the breakout point. This pullback is a typical behaviour observed in the markets, as prices often retest previous breakout points before continuing their upward trajectory.
Understanding the dynamics of support and resistance in the market can significantly enhance your trading strategy. By identifying key levels, such as resistance turning into support or vice versa, you can better gauge the strength and weakness of a stock’s trend.
In the case of Tata Investment, if the current support level fails to hold up and the stock breaks below it, it would indicate a weakening trend. This breakdown could be considered the first warning sign of a potential reversal. Moreover, if the stock goes on to establish a new low, it would confirm the bearish sentiment.
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