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?
Importance of Support and Resistance:
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?
Summary:
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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