Predictive Analytics for identifying Support and Resistance levels

“Two things that are important for the journey are (1) Don’t miss the right Bus (2) Get down at right Bus stop. If you miss either of them, you will not reach your destination”. – Yours truly.

Support and Resistance levels plays an important role to help investors in identifying Entry, Exit, Stop Loss, trend and the price range of the stocks. If an Investor does not have proper insights of these levels they will either miss the Bus or miss the Bus stop.

Many Investors relates and identifies these levels with round numbers in multiple of 100, 500 etc. For high beta stocks and index like BankNifty, it could be in multiple of 1000. e.g. If Spot Nifty Index is at 19200 then generally people will refer the range to be 19000 to 19500 etc. These round numbers are more of psychological levels rather than actual levels.

Each stock has its own foot prints and patterns. Analyzing historical price data of each stock using Predictive Analytics provides a good insight in identifying the levels. Another benefit of using Predictive Analytics is since it is Quantitative approach, one can also categorize these levels based on their strongness like Strong, Stronger and Strongest. 

For example after Nifty reached all time high of 20200 levels, the support available was at 19700 (Strong), 19500 (Stronger), 19300 (Stronger) and 18700 (Strong). So for this range of 1500 points (20200 to 18700) there are only 4 levels that needs to be watched for. Remaining levels are like grass clippings which can be taken out from both the sides (Up and Down).  We have not yet reached the strongest levels for Nifty yet. Point to be noted is 19500 level mentioned above is not because of it is in multiple of 500 otherwise 19000 would also have got qualified. It is the data that tells us about these levels.  In one looks at the last week Spot Nifty data, after breach of 19300 levels, within 2 days it reached lows of 18800. 

Note – 

1. Predictive Analytics is process based. It is not just limited to Indian markets or Nifty. It can be applied to any markets and stock from any geographic location that has historical price data. It does not look at fundamentals of the company or financial results. It only relies on stock market historical price data for patterns and derive results. 

2. Predictive Analytics is different from Technical Analysis so report could differ.

3. It should not be used for small cap stocks or stocks with lower float. Such stocks carry a risk of price manipulation. It should also be not used for newly listed or recently listed stocks as it will not have much price history.

4. Support and Resistance are meant to be broken. If not sooner than later. There will be occasions when support and resistance not work in case of black swan events e.g. Covid, War, Election results etc.

5. Normalized (Adjusted) data is important for correct results. The stock historical price should be adjusted for any corporate actions like Bonus, Split, Rights that changes the price levels of past. 

6. Levels mentioned is not a single number but a range I use levels which is rounded off after deriving it in multiple of 1% value of All time high, so in case of Nifty it is in multiple of 200 points. So, when I mention 19500 it includes 19500 and 19600. When market is going down the support is 19500 and if markets are going up, the resistance is at 19600.

If any Investor / HNI / Fund / Portfolio Manager is interested in such report for any stock or index in any of the world markets (e.g. S&P500, Dow Jones, AAPL, MSFT...) and has (normalized) historical price data, you can contact me for paid part-time remote contract job. I am not SEBI registered and I am not offering any buy or sell recommendation or any returns guarantee. I will just provide the support and resistance report based on stock or index identified by you and the data provided by you and at the frequency required by you.

skmota at g m a il do t co m