Mastering Support and Resistance: Strategic Investments and AI-Driven Financial Insights

Good evening, everyone!  

I'm thrilled to meet all of you here at Diamond Ridge Financial Academy, where we will explore the latest in investment strategies together. By deepening our understanding of market trends and leveraging AI-powered trading tools, I hope to help you enhance your investment skills and achieve consistent, stable returns. I'm looking forward to embarking on this rewarding and valuable learning journey with all of you!

Last night, we analyzed the recent impact of monetary policy on the market and briefly summarized the nature of money. The core feature of money is its liquidity, which also presents many investment opportunities. When money supply increases and interest rates decrease, it becomes easier to access funds, market liquidity improves and asset prices such as stocks and bonds tend to rise. On the other hand, when money supply decreases and interest rates rise, the cost of funds increases, market liquidity declines and asset prices may fall.

Investors can adjust their investment strategies based on changes in monetary policy and the resulting changes in market liquidity. For example, increasing investments during periods of monetary easing and reducing investments during periods of monetary tightening. This explains the recent volatility in the stock market, as the market anticipates that the likelihood of interest rate cuts in the US and the UK next year is lower, leading to a decrease in market liquidity.

Regarding the technical aspect, after last night’s lesson, everyone has a basic understanding of the 21-day moving average. Many students, especially beginners, still have questions about how to use support and resistance levels, such as how to determine price highs and lows and how to use these technical indicators to assist trading decisions. Some students who are more interested in advanced technical analysis have raised similar questions and would like to learn more about how these key concepts are applied in real-world trading. Tonight, we will dive deeper into the definition and usage of support and resistance levels to help you better identify buy and sell signals in actual trades. Before we begin today's lesson, let’s quickly review the market situation today.

This morning, the FTSE 100 index rebounded as expected, but in the afternoon, it fell due to the decline in US stocks. In terms of news, CEO John Pettigrew announced a plan to almost double the UK's energy capacity. According to the plan, National Grid will upgrade 3,500 kilometers of overhead lines and aims to add 35 GW of generation and storage capacity.

National Grid (NG) released its "RIIO-T3 Business Plan," which outlines up to £35B in investment over five years starting in April 2026. This investment includes £11B for maintaining and upgrading the existing network, as well as funding for the initial Acceleration of the Strategic Transmission Investment (ASTI) projects.

Although these policies haven't yet led to a sharp rise in upstream industry stock prices, they create a good environment for the development of downstream industries, especially in fields like renewable energy, wind power, aviation and automobile manufacturing. Particularly in emerging technology sectors, this will help attract more incremental funds, thereby driving the overall economy and benefiting the UK stock market.

However, the upcoming Federal Reserve meeting results have turned market sentiment pessimistic. Although the Fed has confirmed a 25 basis point rate cut, expectations of a slower pace of rate cuts next year will impact the Bank of England's rate cuts and create a negative outlook for the UK stock market. This negative expectation led to intensified short-term selling, which became the main reason for the FTSE 100 index's afternoon drop. Therefore, the FTSE 100's performance reflects a battle between positive factors (energy infrastructure investment) and negative factors (Fed rate cut expectations).

Through the recent fluctuations in the stock market, you may have noticed that the prices of many investment products tend to rebound after falling. Similarly, after rising a lot, they also fall. For example, with the FTSE 100 index, when the price reached around 8,400 points at the beginning of the month, I reminded everyone that the UK stock market would likely face a pullback. This is because 8,400 points is the resistance zone near the historical high (as shown above) and the previous three times it touched this area, there was a pullback. Also, since it's the end of the year and economic data hasn't met expectations, the pullback became a high-probability event.

Investment doesn't have a 100% success rate and in actual trading, the key is to continuously increase your chances of success based on various data and price patterns. Just like the prediction for the FTSE 100 index, we can't pinpoint exactly when the drop will occur, but by analyzing data and technical indicators, we can predict that the index will likely see a pullback near 8,400 points. This is the result of both fundamental and technical analysis working together to provide accurate predictions.

Stock trading follows the same principle. For example, Nvidia’s stock price dropped due to sanctions from China, overheating issues with the Blackwell chip and competition from internally custom chips. Although the fundamental analysis is complex, the technical analysis is quite simple.

Looking at Nvidia’s stock price chart over the past six months, we can clearly see a noticeable pattern. Recently, after the stock price dropped to the top of the Oct candlestick chart, it started to rebound, confirming the role of support and resistance levels in technical analysis. A price rebound after hitting an important support level is a common phenomenon in technical analysis. This rebound provides investors with an opportunity to buy again and reflects the market’s confidence in Nvidia's fundamentals, with at least some investors believing its long-term value has not been completely negated.

Based on this, we can analyze two investment buying strategies:

The first strategy: Dollar-cost averaging. For investors who bought Nvidia stock above $140, the recent price drop offers an opportunity to lower the average cost of their holdings. By buying on dips, they can reduce the average cost, thus lowering investment risk and increasing potential returns.

The second strategy: Buying on dips. For investors who bought Nvidia stock below $130 or those who did not hold Nvidia stock before but are optimistic about its future performance, the drop below $130 is seen as a great buying signal. They believe that the current price fully reflects the negative factors and the future upside potential is larger.

Therefore, whether making short-term or long-term investments, support and resistance levels are important trading reference indicators.

Support and resistance levels are the most basic and important concepts in technical analysis. No matter your investment experience, mastering them is crucial because they directly affect the accuracy of trading decisions. Next, we will delve deeper into the definition and methods for identifying support and resistance levels to improve your trading success rate.

Given the ever-changing investment market and the flood of information, the importance of technical analysis is becoming increasingly clear. It reflects investor sentiment through market behaviors like price and volume, providing us with intuitive and clear judgment indicators.

For beginners, the advantage of technical analysis lies in its simplicity and practicality. By mastering a few basic tools, one can quickly judge market trends and build their own trading system. This makes technical analysis an ideal choice for beginners entering the world of investing.

Support Level is the area where the price faces support during a decline and is unlikely to continue falling. In this area, buying pressure increases and gradually surpasses selling pressure, causing the price to stop falling and possibly rebound. Simply put, the support level is the "bottom" of the price.

Resistance Level is the area where the price faces resistance during an uptrend and is unlikely to rise further. In this area, selling pressure increases and gradually surpasses buying pressure, causing the price to pull back. It is the "top" of the price.

To accurately identify support and resistance levels, we need to use a variety of methods and consider different factors comprehensively.

Specifically, we can use the following methods:

1. Historical price performance.

Support and resistance levels often appear at historical highs or lows. For example, if a stock has bounced back multiple times from a certain price level, that level could become a future support level. Similarly, price points where repeated pullbacks have occurred can become resistance levels (as shown in Chart 1).

2. Moving average system assistance.

The 21-day moving average is a very useful medium-term trend line. It not only reflects the overall price trend but also helps in identifying support and resistance levels. When the price is below the moving average, the 21-day moving average often acts as a resistance level; when the price is above it, the 21-day moving average may act as a dynamic support level (as shown in Chart 2).

3. Psychological levels and round numbers.  

There are some natural psychological levels in the market, like round numbers (e.g., $100, $500). These areas, due to investor psychology, often become support or resistance levels.  

As shown in the chart, before 2024, the weekly chart of gold shows that gold price tried to break the $2K level three times without success. This means that the $2K level acted as a price resistance for three years and the gold price stayed below it. So, round numbers are psychological barriers for investors and also important support or resistance levels.  

Based on the accurate judgment of support and resistance levels, we can create more effective trading strategies by combining the 21-day moving average. For example:  

When the price stabilizes near the support level and breaks above the 21-day moving average, accompanied by increased trading volume, this is a strong buy signal. When the price faces resistance near the resistance level and falls below the 21-day moving average, accompanied by increased trading volume, this is a strong sell signal.

The appeal of the investment market lies in its complexity and consistency. While support and resistance levels are important analytical tools, the key to successful investing lies in developing a good investment mindset. Every investment comes with risk, and there’s no 100% winning strategy. Even efficient systems like quantitative trading don’t focus on making profit from every trade, but on achieving stable returns over the long term by leveraging probability.  

For example, a quantitative trading system takes massive amounts of market data and price fluctuations, organizing them into actionable patterns, helping investors find advantageous strategies in a dynamic market. The essence of this system is scientific decision-making, not "perfection." Just like the mindset investors need, quantitative trading focuses on long-term accumulation, not short-term gains and losses.

Next month, we will be beta testing the Quantitative Trading AI 5.0 system, a revolutionary tool that brings together the strategies of hundreds of top analysts worldwide and integrates comprehensive data analysis capabilities. By combining AI technology with investment logic, this system can more accurately identify key signals in the market, providing investors with highly personalized decision-making support. The release of AI 5.0 will create a new market for AI and financial trading, offering investors an unprecedented profit experience.  

What’s especially noteworthy is that this system is not only suitable for professional investors but also friendly for beginners. It helps users better understand market trends and develop scientific investment strategies. Whether it’s long-term holding or short-term trading, AI 5.0 provides strong support.

To help everyone better understand how the quantitative trading system works, we’re holding an online learning course covering various topics, from the basics of technical analysis to hands-on quantitative strategies. With Christmas season approaching, we’ve prepared New Year investment learning gifts to encourage more students to actively participate in learning. If you haven’t received yours, please reach out to your assistant. Additionally, students participating in next month’s AI 5.0 beta test will get the chance to experience the new system’s intelligent trading support.  

The launch of AI 5.0 marks a new beginning, empowering investors in the AI era. I look forward to seeing every student master the way of investment through learning and practice and together, we will reach new heights in the financial future!

That concludes tonight’s sharing. Investment may seem complex, but its core is to grasp the patterns and maintain a good mindset. Whether through judging support and resistance levels or using quantitative trading systems to optimize decisions, as long as we keep learning and improving in practice, we can find our rhythm in the market.  

In the next lesson, I will explain the buy signals formed by the combination of the 21-day moving average and support levels.  

If you have any questions during the investment process, feel free to consult with me at any time.  

Through tonight's sharing, please think about:  

1. What was the reason for Nvidia’s rebound? What’s the basis for the operation?  

2. What are the methods for judging support and resistance? Which method do you prefer?