Technical analysts often use the idea of resistance to define price levels at which selling activity could be expected to emerge for a stock. Such analysts typically visually inspect stock price charts to look for levels at which the stock price showed a substantial reversal by making a notable high or low point on the chart.
If such reversals levels happened at a price above the current market, they are typically known as resistance levels. On the other hand, when reversals occurred below the present market price, they are called support levels.
When a stock’s price increases to trade close to an important resistance level, technical traders can interpret that as a bearish indication that they might use to go short the stock or sell out an existing long position. Traders who do establish a short position will typically place stop loss buy orders safely above the close by resistance level to cut their losses if the resistance level ultimately breaks.
Furthermore, traders often look for confirmation before selling the stock. This can either appear as selling pressure showing up close to the calculated resistance level, or as bearish divergence appearing on key momentum indicators, like the Relative Strength Index or RSI, where new indicator highs are not observed when the price makes a new high.
Please review the outcome of an algorithmic scan of the stock market to determine the stocks that are currently trading close to their computed resistance levels and thus could present a trader with an opportunity to sell.
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