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Support and resistance are two basic concepts in technical analysis
A. Support:
It is a price level that is expected to provide purchasing power and stop the price from falling.
It represents a point where demand for the currency increases, which supports the price and prevents it from falling further.
Example: If the price of XRP drops to $2 several times and does not fall further, then $2 represents a support level.
B. Resistance:
It is a price level that is expected to stop the price from rising.
It represents a point where supply increases, which puts pressure on the price and prevents it from rising further.
Example: If the price of XRP tries to exceed $2.5 several times and does not succeed, then $2.5 represents a resistance level.
2. How to Identify Support and Resistance:
Chart Analysis:
Watch the points where the price has reversed in the past, whether up or down.
Psychological Numbers:
Whole price levels (such as $1, $5) often represent support or resistance points.
Technical Indicators:
Moving Averages.
Trend Lines.
Fibonacci Levels.
3. Importance of Support and Resistance:
Identifying Entry and Exit Points: Helps traders determine the best buying or selling points.
Risk Management: Allows traders to place Stop-Loss orders below support or above resistance.