Tom Talks about what Support Means to the Market
Transcript:
Katie Nealis: So another question that we have from Lisa is what exactly do you mean when you refer to support when talking about investing?
Tom Vaughan: Oh, okay. Yeah, support is an interesting area, I talk about it a lot in my daily videos. And I think sometimes it can get a little bit confusing. Let me share my screen, and I’ll try to describe it, I actually think it’s one of the more important things to understand. I found that it’s fairly useful. So this is a chart here of Apple, right. So most people know Apple, right. And this is daily, everyone these boxes is a day, this is the last one year, you can see, you know, kind of the channel apples going up overall, although it’s had kind of a sideways motion here for a while, but, but what you’re seeing over here, this green piece here, this is called the volume profile, this is a really powerful tool for figuring out support and resistance.
So what what we see down here at the bottom is the volume by the day. So you can see this day right here had a lot of volume, right? And another day, you know, not so much. But what I really want to see is what the volume is for every price. So currently, it’s selling and it’s flashing right now, this is by the second, you know, $134.69, for example. And so this green piece here shows how many shares were sold at each price level. So if you look here, there’s not a lot of shares sold here at the top, because it didn’t spend that much time there, right. Versus down in here, you can see there’s a lot more shares purchased at these lower prices, this is about $120. a share. This red line here means this is the highest point in time, which is $115 a share. So when you’re at 134, they give you an example. So let’s say somebody bought here at 120. And it went up to 134, you’re thinking great, I’ve made some great money on that, I’m really happy I bought that, and then it comes back down to 120. You might want to buy it again. And so that’s what that’s what support is called. And you can tell how much support is there by how much volume there is at every price.
You can see, for example, right here, once it gets to $108, it could fall all the way down to maybe 95. There’s not a lot of support there, right, there’s not a lot, it didn’t spend much time at those prices. And support is also important as to immediacy. So if you go back more than a year, you’re nobody really cares as much as you do sort of a shorter term timeframe where people can kind of remember so that’s the idea behind support. It can go the other way, let’s say this price falls all the way down here. Now in order to come back up all these people that bought in at higher prices or maybe going to try to get their money back and they’re going to keep knocking down the stock as they kind of re re retake their money. So anyway, support and resistance is I think an interesting thing, it’s a great thing to look at when you’re looking at, you know, a particular stock or even a you know, combination of stocks like an ETF like an exchange traded fund.