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Understanding Support and Resistance in Trading

Support and resistance are two fundamental concepts in technical analysis that help traders identify key price levels in the market. These levels represent points where the price of an asset tends to stop and reverse, providing potential buying or selling opportunities.

Support refers to a price level where demand is strong enough to prevent the price from falling further. As the price approaches this level, traders expect it to "bounce" off, signaling a buying opportunity. It acts as a floor, where the price is supported by increased buying interest.

Resistance, on the other hand, is the price level at which selling pressure increases, preventing the price from rising further. It serves as a ceiling where sellers outweigh buyers, leading to a price drop. When the price reaches this level, it is often seen as an opportunity to sell.

Traders use these levels to make informed decisions, setting stop-losses or take-profits around them. Once broken, a support level can turn into resistance and vice versa. Understanding how to spot these levels can significantly improve trading strategies, as they offer a better understanding of market behavior and potential price movements.

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