Fundamentals of Support and Resistance
5. How Support and Resistance Levels Influence Trading Decisions
Breakouts: When a price breaks above resistance or below support, it may signal a trend continuation.
Reversals: Prices may bounce back from support or resistance, indicating a reversal.
Stop Loss and Take Profit Orders: Traders often set these orders based on support and resistance levels to manage risk.
6. Challenges and Limitations
False Breakouts: Sometimes, prices may appear to break through a level but quickly reverse, making it difficult to identify true breakouts.
Changing Market Conditions: Support and resistance levels may lose relevance as market sentiment shifts or due to unforeseen events.
7. Conclusion
Support and resistance are vital concepts in technical analysis that help traders make informed decisions. Recognizing these levels can assist in understanding market dynamics and predicting potential price movements. However, they should be used alongside other analysis tools and risk management strategies for best results.
