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Support / Resistance
Support and resistance levels define a recent range in which a stock tends
to trade. More specifically, a stocks support level is the price in which it
will likely stop falling on the way down, and its resistance level is the price
it will likely start selling off if it attempts to move higher.
Support and resistance levels are calculated by examining previous chart
intervals from the most recent period. Generally, the price in which the stock
"bounced" the most often would be its support level, or the price
in which the stock hit a "ceiling" would be the resistance level.
Since a predetermined number of previous intervals are examined, the level or
support or resistance will depend on how far back this period is. Hence, the
"step" period for the calculation can affect these computed levels.
Sensitivity
In addition to a step period, PowerScan provides an additional parameter
to the Support/Resistance calculation: sensitivity. The sensitivity variable
basically increases a "leeway" factor when determining support. If
sensitivity is zero, support is simply the lowest low in the step area, and
support is the highest high. A non-zero sensitivity is a percent deviation that
will check highs and lows withing that percentage of distance.
For example, if sensitivity is 1.0 (1 percent), then the computation finds
the lowest low within the step period, but also any prices within 1% of that
low to determine the most likely area of support. The price with the most occurrences
receive the highest "score" and become the support (or resistance)
level for that time span. If sensitivity is zero, then the lowest low and highest
high become support and resistance.
An
example showing Support/Resistance in PowerScan for a step of about 1/3
of the most recent time period. Notice how the stock has "bounced"
off of the support lines several times, and has failed to break through the
resistance line at least twice.
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