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Learn To Use Support Resistance For Trading

The Basics:

Most experienced traders will be able to tell many stories about how certain price levels tend to prevent traders from pushing the price of an underlying asset in a certain direction. We have price levels that are known as support. This terminology refers to prices on a chart that tend to act as a floor by preventing the price of an asset from being pushed downward.

The ability to identify a level of support can also coincide with a good buying opportunity because this is generally the area where market participants see good value and start to push prices higher again. Resistance levels are also regarded as a ceiling because these price levels prevent the market from moving prices upward.

What Is Support?

Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. 

What Is Resistance?

Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy.

Importance of Support and Resistance:

Support and resistance levels are a critical part of trend analysis because it can be used to make specific trading decisions and identify when a trend is about to reverse. For example, a trader might identify an upcoming support level and decide to start buying the stock as it approaches knowing that it will likely rebound higher. These levels both test and confirm trends and should be closely monitored by anyone using technical analysis.

As long as the price remains between these two levels, the trend is likely to continue in the prevailing direction. However, a break beyond support or resistance does not always indicate a reversal. For example, a breakout higher may be the start of a faster bullish trend and vice versa for a breakdown below trendline support.  

How to trade with Support Resistance?


Support and Resistance are areas on the chart where price reverses temporarily or permanently. Hence it can be utilized to initiate buy and sell positions subsequently. Support level occurs when the belief is that price will not fall further, while resistance level occurs when the belief is that the price will not move higher.

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