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Identifying Support and Resistance in Trading

Support and resistance levels are essential tools for traders when analyzing price movements in financial markets. These levels mark key points on a price chart where an asset tends to reverse its direction, indicating potential entry or exit points for trades.

Support is a price level where a downtrend can be expected to pause due to a concentration of demand. As the price of an asset falls, buyers are more inclined to purchase, creating a “floor” that the price is unlikely to drop below unless a significant shift in market sentiment occurs.

Resistance, on the other hand, is a price level where an uptrend may pause or reverse as selling pressure increases. This “ceiling” happens because traders anticipate the price may have peaked and start selling their positions.

When price breaks through these levels, it often signals a continuation of the trend. If resistance is broken, it may turn into a new support level, and vice versa. Traders use support and resistance, along with other indicators, to make informed decisions about buying, selling, or holding an asset, making these concepts crucial for technical analysis.

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