Chapter 24 · Support and Resistance
Zones, volume at price, and Nepal's artificial levels
Turning a line into a zone with volume, and telling a real level apart from a circuit limit.
Volume profile and the value area
A support level drawn across two lows is a guess about where orders sit. Volume at price turns it into a measurement: the more business done in a band, the more holders have a position with an opinion about it.
Why volume at price beats a horizontal line
| Method | What it uses | Weakness |
|---|---|---|
| Line through swing lows | Two or three price points | Ignores how much traded there |
| Round numbers | Psychology of resting orders | Real, but weak on its own |
| Volume at price | Every trade in a band | Needs data most retail tools omit |
| Prior consolidation | Where price spent time | The best proxy when volume at price is unavailable |
If you cannot get a volume profile, time spent is a serviceable substitute. A band the price traded inside for three weeks has more holders in it than a band it passed through in a day.
Worked: sizing a zone from the data you have
A share was rejected at Rs 486, Rs 491 and Rs 484 over three months, and spent eleven sessions trading between Rs 480 and Rs 492 before the first rejection.
- The zone is Rs 480 to Rs 492, not the single figure Rs 486.
- A short entered at 486 with a stop at 489 is inside the zone — it will be stopped out by the level behaving exactly as expected.
- A stop belongs above 492, plus an allowance for the stock's own noise. With an ATR of Rs 9, a stop near Rs 497 is outside both the zone and the daily range.
- The zone decides the stop; the stop decides the position size. That chain is the whole practical use of drawing levels.
Circuit limits: the levels that are not levels
NEPSE applies a daily percentage band to how far a share may move. This creates prices that look like support and resistance on a chart and are nothing of the kind.
| What you see | What it usually means |
|---|---|
| Several closes at exactly the same high | The upper circuit, not a seller |
| Volume collapsing at that high | Trading stopped, not interest ending |
| A gap straight through the level next session | The band reset; the level never existed |
| The same shape at a low | The lower circuit — selling unfinished, not exhausted |
Levels that are specific to Nepal
- The IPO price. A great many holders bought at exactly that number and remember it.
- The rights issue price, usually par. The same effect, and it recurs each time a company issues rights.
- The ex-bonus adjusted price. After a bonus the chart gaps down mechanically; levels drawn before it must be adjusted or discarded.
- The 52-week high and low, published on every price screen and watched by people who watch nothing else.
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