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Understanding Support and Resistance in Trading
Support and resistance are fundamental concepts in technical analysis that help traders make informed decisions about buying and selling assets.
Support refers to a price level where an asset tends to find buying interest, preventing it from falling further. It's like a floor, where demand typically increases as prices drop, pushing them back up. When the price approaches support, traders often anticipate a reversal and consider buying opportunities.
On the other hand, resistance is the price level where an asset faces selling pressure, preventing it from rising further. It acts as a ceiling, where supply increases, leading to a potential price reversal. Traders typically see resistance levels as a signal to sell or short an asset.
These levels are not exact points but zones where price action tends to react. The more often a price touches a support or resistance level without breaking it, the stronger that level becomes. However, once a support or resistance level is broken, it often flips roles: broken support becomes new resistance, and broken resistance turns into support.
Understanding these levels can significantly enhance a traderâs ability to predict market movements and make strategic decisions.
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