The concept of support is often used by technical analysts to determine at what price buying activity might be expected to materialize for a stock. Traditionally, such analysts have visually reviewed price charts to observe at what levels the market price made a significant reversal, forming a notable peak or trough in the price action.
When such reversals points have occurred below the current market price level, they are usually called support levels. Alternatively, when the reversal points lie above the market, they are known as resistance levels.
As the price of a stock declines to trade near an important support level, technical traders often use that as a bullish signal for them to consider establishing a long position in the stock. If they do decide to buy the stock, they will also often place their stop loss sell orders safely below the support level to protect the position from losses just in case the support level breaks.
In addition, traders might look for confirmation in the form of buying activity materializing near the identified support level, as well as favorable bullish reversal signs on closely watched momentum indicators, such as the Relative Strength Index or RSI.
Please see below the results of an algorithmic scan of the stock market used to identify which stocks are currently trading near their computed support levels and therefore might present a trader with a buying opportunity.
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