Supports and Resistances in Trading

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Introduction

Support and resistance levels are crucial in understanding market dynamics.

They represent key price levels where the forces of supply and demand meet, often dictating the market’s direction.

Understanding Support and Resistance

• Support: This level is where the price tends to find a floor, as buyers enter the market at these points, preventing further declines.
• Resistance: This level is where the price typically finds a ceiling, as sellers enter the market, halting further increases.

The Psychology Behind These Levels

These levels are not just technical phenomena but also represent collective market psychology.

They signify points where traders and investors have historically agreed on value, influencing future trading behavior.

Identifying Support and Resistance Levels

• Historical Price Action: Past price data is invaluable. Look for areas where the price has consistently stopped and changed direction.
• Round Numbers: These often act as psychological barriers due to the tendency of placing orders at round figures.