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Understanding Support and Resistance in Trading

Support and resistance are fundamental concepts in technical analysis, widely used to forecast potential price movements of financial assets. Support refers to a price level where an asset tends to find buying interest, preventing it from falling further. It’s where demand typically outweighs supply, creating a floor for the asset. Traders often view support levels as good points to enter a long position, anticipating a bounce.

On the other hand, resistance is a price level where an asset struggles to rise above due to selling pressure. It acts as a ceiling, where supply exceeds demand. Traders may see resistance levels as optimal points to enter short positions, expecting the price to drop.

When price breaks through support or resistance levels, it can signal the beginning of a new trend. A support level that is broken can turn into resistance, and vice versa.

Identifying these levels helps traders make informed decisions on entry, exit, and stop-loss placement. Combined with other technical indicators, support and resistance can enhance the effectiveness of trading strategies, helping to predict potential reversals and continuations in price trends.

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