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Identifying Support and Resistance in Trading

In trading, support and resistance levels are key concepts used to analyze price movements. They act as psychological barriers that can influence whether prices will reverse or continue along their current path.

Support refers to a price level where a stock or asset tends to find buying interest, preventing the price from falling further. It acts as a "floor," where demand typically increases, leading to price stabilization or reversal upward.

Resistance, on the other hand, is a price level where selling pressure emerges, preventing the asset from rising further. It acts as a "ceiling," where supply outstrips demand, leading to price consolidation or reversal downward.

Traders use support and resistance to make informed decisions, as they can indicate entry or exit points in the market. If the price breaks through resistance, it may indicate the potential for further gains, while a breakdown below support could signal further declines. Additionally, these levels often become self-fulfilling as many traders set stop-loss orders or place trades based on them, reinforcing their importance in market behavior. Mastering these concepts is crucial for technical analysis and overall trading success.

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