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Investigating the merits of support and resistance strategy: Evidence from international financial markets

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  • Enow, Samuel Tabot

    (Research Associate, IIE Varsity College, Durban)

Abstract

Support and resistance strategy is widely recognized in financial markets as it revolves around identifying specific price levels on a chart where the buying and selling pressure is historically significant. By analyzing these historical price actions and market trends, traders can utilize fundamental analysis strategies to predict future price movements. The aim of this study was to empirically explore the merits of a support and resistance strategy in financial markets due to its perceived significant impact on active market participants. A probability algorithm and Sharpe ratio model was utilized for six financial markets from June 13, 2018 to June 13, 2023. The findings revealed that market participants in the JSE and DAX can use support and resistance strategy to enhance the value of their portfolio than a buy and hold approach. This can be achieved by determining the entry and exit points for trades, setting the entry point slightly above the support level to confirm a potential price reversal and selling near a resistance level. A stop-loss orders should also be utilized in along with the above mentioned steps to manage risk.

Suggested Citation

  • Enow, Samuel Tabot, 2023. "Investigating the merits of support and resistance strategy: Evidence from international financial markets," Journal of Economic and Social Development, Clinical Journals Press, vol. 10(02), pages 01-06, September.
    • Handle: RePEc:ris:joeasd:0032
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    References listed on IDEAS

    as
    1. Samuel Tabot Enow, 2022. "Overreaction And Underreaction During The Covid-19 Pandemic In The South African Stock Market And Its Implications," Eurasian Journal of Business and Management, Eurasian Publications, vol. 10(1), pages 19-26.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Support and Resistance; Financial Markets; Breakout Strategy; Fundamental Analysis; Technical Analysis;
    All these keywords.

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists

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