What is a Resistance? - It is a level where selling overpowers buying. In layman's terms - resistance is like a wall which stalls the stocks progress.
Let me explain this with one example:
Here's Central Bank of India stock weekly chart
As you can see in the chart above: Central Bank of India stock faced a stiff resistance around 110 on weekly chart over last 3-4 years. This resistance is ready to be challenged once again in 2015.
Here's how stock has done this week at resistance point
Huge Exhaustion move on big volumes. The stock was up 6.4% yesterday and down 7.1% today. The sum total of this buying and selling resulted into the candle you see on the chart. This action just confirms why one should wait for weekly close on breakout before making any conclusive call on where stock is heading next.
If you are fundamentally bullish on the stock - wait for it to clear the resistance at 110 before getting excited on the stock again. On daily chart - the stock is in uptrend and will see buying on dips near 50 dma i.e. 98 but people who look at long term charts will prefer to wait.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers