What are Supports and Resistances

Supports and resistances are key concepts in technical analysis used by traders and investors to analyze price movements in financial markets, such as stocks, currencies, commodities, and indices. They represent levels at which the price of an asset tends to stop, reverse, or experience significant buying or selling pressure. Understanding supports and resistances can help traders identify potential entry and exit points, manage risk, and make informed trading decisions.



Support:

  • Support is a price level at which the demand for an asset is perceived to be strong enough to prevent the price from falling further. It acts as a floor beneath the price, where buying interest exceeds selling pressure, leading to a temporary halt or reversal in the downward movement.
  • When the price approaches a support level, traders anticipate a bounce or reversal upwards, as buyers step in to purchase the asset at perceived bargain prices.
  • Support levels can be identified using various technical analysis tools and methods, including chart patterns, moving averages, trendlines, and volume analysis.
  • If a support level is breached, it may signal a weakening of buying interest and potential further downside movement in the price.

Resistance:

  • Resistance is a price level at which the supply of an asset is perceived to be strong enough to prevent the price from rising further. It acts as a ceiling above the price, where selling pressure exceeds buying interest, leading to a temporary halt or reversal in the upward movement.
  • When the price approaches a resistance level, traders anticipate a pullback or reversal downwards, as sellers dominate and prevent the price from moving higher.
  • Resistance levels can be identified using similar technical analysis tools and methods as supports, including chart patterns, moving averages, trendlines, and volume analysis.
  • If a resistance level is breached, it may signal a breakout or continuation of the upward trend, as buying interest overcomes selling pressure and pushes the price higher.

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