Thread by @stocktalk_in

📕 A Quick Guide on SUPPORT LEVELS & DEMAND ZONES

🔸 Have you ever noticed how a stock quickly moves up after it drops to a certain price level?

🔸 People say "the stock has taken support" or "bounced back from support level"

Let's understand why the bounce happens;

{1/7}

🔸 The basic logic behind support level (also known as demand zone) is related to how big institutional investors buy shares.

🔸 When institutional investors take a position they have a huge qty of shares to buy & so they want the order to be filled at a particular price.

{2/7}

🔸 Let's say the stock of XYZ Ltd. is currently trading at ₹525.

🔸 But institutional investors want to buy 5 crore shares of XYZ Ltd. at ₹500.

🔸 So they put in a buy limit order of 5 crore shares at ₹500.

🔸 This order now remains pending in the order book.

{3/7}

🔸 Now when the stock price comes down to ₹500, their pending buy order gets triggered and the massive buying quickly pushes the stock price up.

🔸 What happens many a times is that not all 5 crore shares get filled because of the sudden jump in stock price at ₹500.

{4/7}

🔸 Let's say out of the 5 crore shares they wanted to buy at ₹500, only 3 crore shares get filled and then the stock price zooms up.

🔸 Now, still they have a pending buy order of 2 crore shares at ₹500.

🔸 So ₹500 has now become a support level or a demand zone!

{5/7}

🔸 Next time when the stock price again comes down to ₹500 it again gets a quick bounce up at ₹500 because of the pending buy order of 2 crore shares.

🔸 Such partial fills are called "order legs" and usually institutional buying happens over multiple such order legs.

{6/7}

🔸 For retail investors, it's important to identify such "support levels" or "demand zones" from where the price has quickly reacted and zoomed up.

🔸 Getting the order filled at such levels is usually considered a good entry price as you're on side of the institutions.

{7/7}