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Understanding Support and Resistance in Trading

In trading, support and resistance are critical concepts that help traders identify potential price levels where an asset might reverse or pause. Support refers to a price level where a downtrend can be expected to halt due to a concentration of demand or buying interest. As the price of an asset drops to this level, buyers step in, causing the price to bounce back up. Think of support as the "floor" that holds the price up.

Resistance, on the other hand, is the price level where a rising trend can be expected to pause due to selling pressure. When the price approaches this level, sellers become more active, potentially halting or reversing the upward movement. Resistance can be thought of as the "ceiling" that limits how high prices can rise.

Traders use support and resistance to make informed decisions. For example, buying near support and selling near resistance can be a strategy to capitalize on predictable price movements. However, once a support or resistance level is broken, the price often continues in the direction of the breakout, which can indicate a trend shift.

By understanding these levels, traders can better anticipate market movements and manage risk effectively.

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