Question:
I really want to learn this stuff. at school Im starting to take AP economicsclass . before I will start I just want to have an idea about this thing. I could just google it but I want some well put explanation from people who actually know this financial things.
thanks a lot
Answers:
I've been doing this for my entire adult life.
"Support and resistance" is a "technical" term. I mean technical, as opposed to fundamental, term. Support and resistance are used in charting terms, whereby an investment price will reach psychological barriers on the upside (resistance) and downside (support). This follows quantitative theory that tries to find patterns in a chart and ignoring the underlying fundamentals.
"Supply and Demand" is a micro-economic term. It is different in that these two functions determine the price. The overall market's demand function determines the slope of the demand curve. The demand curve is how much the market would want of a specific good or service at a given price. The supply curve is the same thing, but on the supply side. Where the two curves meet is the market clearing price. The study of microeconomics then help one understand where prices are and where they are going in the future based on the underlying fundamentals.
Let's take an example - oil. A chartist would look at the price of oil to see where patterns develop to see if oil prices can break out above US$73/bbl or if they will collapse back down toward their support levels. A micro-economist would look at demand - which is driven by the global economy (especially US, China and Europe) and supply (which is about half determined by OPEC and the other half by non-OPEC countries like Russia). A micro-economist would know that the demand curve is very steep and that a prospective supply shift left (from disruptions in Nigeria) would cause a large spike in prices.
There you go. Two different perspectives on the same issue.
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