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Understanding Support and Resistance in Trading

Support and resistance are fundamental concepts in technical analysis, guiding traders in identifying potential price movements. Support refers to a price level where an asset tends to find buying interest, preventing the price from falling further. It acts like a "floor" where demand increases, leading to a potential bounce in price. Resistance, on the other hand, is a price level where selling interest is strong enough to prevent the price from rising further, acting as a "ceiling."

When an asset approaches a support level, traders often see this as a buying opportunity, anticipating a price rebound. Conversely, as an asset nears a resistance level, sellers might step in, believing the price has limited room to rise.

However, these levels are not absolute. If the price breaks through a support level, it could indicate continued downward movement, while breaking through resistance may signal further upward momentum. These breakout points are critical, as they often result in heightened volatility.

Spotting support and resistance levels is essential for effective risk management and trade entry or exit decisions, offering traders a structured way to anticipate market movements.

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