Support and resistance are two fundamental concepts in technical analysis that are used to identify key levels in the price of a security or asset. Understanding these concepts can help traders make more informed decisions about when to buy and sell, as well as identify potential entry and exit points for trades. In this lesson, we will explore what support and resistance are, how they work, and how they can be used in trading.
Medium: Support is a price level where buying pressure is strong enough to prevent the price from falling further. In other words, it is a level where the demand for the asset is greater than the supply. When the price of an asset approaches a support level, traders often expect it to bounce back up, as buyers enter the market to take advantage of the lower price. For example, imagine that a cryptocurrency has been trading in a range between $50 and $60 for several weeks. If the stock price drops to $55 and then bounces back up, $55 can be considered a support level. Traders can use this level as a buying opportunity, assuming that the price will continue to rise from this point.