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Understanding Support and Resistance in Trading

In financial markets, support and resistance are key concepts used by traders to make informed decisions. They represent price levels where an asset struggles to move beyond, either on the upside or downside.

Support refers to a price level where demand is strong enough to prevent the asset's price from falling further. Traders often view it as a "floor" where buyers step in, creating upward pressure. When the price reaches this level, it tends to bounce back up unless selling pressure is strong enough to break below.

On the other hand, resistance acts as a "ceiling" where selling pressure outweighs buying interest, preventing the price from rising higher. As the price approaches this level, it may reverse downward unless there's enough buying momentum to break through.

Traders often use these levels to identify entry and exit points. When the price breaks through support or resistance, it can signal a potential trend reversal or continuation. However, these levels aren't foolproof, so combining them with other technical analysis tools, such as moving averages or volume indicators, can provide more accurate predictions.

Understanding support and resistance is crucial for developing effective trading strategies and managing risk.

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