Question

"A technical analyst has identified a resistance level for ABC stock at $81 and a support level at $75. The stock is currently trading at $77 and the analyst expects the stock to break the resistance level. Which order is appropriate to profit if the resistance level is broken?"

Answer 1

Answer:

Buy 100 ABC at $82 Stop

Explanation:

In the financial markets a resistance is an upper limit block on the market moving upward (buy). While the support is the lower limit on the market moving down (sell).

In this scenario we have a support of $75, resistance of $81 and the stock.is currently trading at $77. Just below the resistance.

If the analyst expects the stock to break the resistance of $81 then he should set a trade that is a buy since the market will go above $81.

When the market breaks a resistance it is expected to sky rocket, so the analyst will set a trade stop at $82, so that when the market is coming back down to the resistance level it will stop before it gets to $81.

On the other hand if a support is expected to be broken a sell trade is placed.