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Understanding Support and Resistance in Trading

Support and resistance are key concepts in technical analysis, often used by traders to predict potential price movements in financial markets.

Support refers to a price level where an asset tends to find buying interest, preventing it from falling further. At this level, buyers overpower sellers, creating a “floor” that holds the price up. When the price approaches this level, traders might expect it to bounce back up, making it a good buying opportunity.

Resistance is the opposite. It represents a price level where selling pressure tends to exceed buying pressure, creating a “ceiling” that caps the price. When the price nears resistance, it often struggles to move higher, as sellers come in, making it a potential point for traders to sell or short.

These levels aren't always exact and can fluctuate slightly, often forming zones rather than strict lines. Additionally, when a price breaks through support or resistance, it often signals a trend reversal or continuation. For example, breaking through resistance could suggest an upward trend, while falling below support may indicate further decline.

Mastering support and resistance can enhance a trader's ability to identify entry and exit points, improving trade decisions.

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