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Understanding Support and Resistance in Trading

Support and resistance are key concepts in technical analysis, helping traders predict potential price movements of an asset.

Support refers to a price level where an asset tends to stop falling due to increased buying interest. It acts as a "floor," preventing the price from dropping further. When the price nears this level, traders expect demand to increase, creating a bounce back in price. However, if this level is broken, the price may continue to decline.

Resistance, on the other hand, is a price level where an asset's rise is halted due to selling pressure. It acts as a "ceiling," limiting how high the price can go. As the price approaches resistance, selling often increases, causing the price to retreat. If the resistance is broken, the price may rally higher.

Understanding these levels is crucial for traders, as they provide key entry and exit points. Traders often buy at support and sell at resistance or set stop losses around these levels to manage risk. While not always exact, support and resistance help in making more informed trading decisions.

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