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Understanding Support and Resistance in Trading

Support and resistance are key concepts in technical analysis, used by traders to predict potential price movements in financial markets. A support level is a price point where an asset tends to find buying interest, preventing it from falling further. This happens because as the price reaches this level, demand increases, creating a floor. On the other hand, resistance is the price point where selling pressure increases, preventing the asset from rising further. As prices approach resistance, supply outstrips demand, creating a ceiling.

Traders use these levels to make informed decisions. When a price breaks through support or resistance, it can signal a continuation of the trend. For instance, if a stock breaks through resistance, it may continue rising. Similarly, a breakdown below support could indicate further declines.

These levels are often identified using historical price data, trend lines, or technical indicators. However, support and resistance are not exact numbers but rather zones. Market sentiment, news, and external factors can cause price fluctuations, so it's crucial to combine support and resistance with other tools and strategies for more accurate trading decisions. Understanding these levels can enhance trading strategies and manage risks effectively.

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