Support and Resistance

Support and resistance are key concepts in technical analysis that refer to price levels at which a security's price tends to stop falling or rising, respectively. Support refers to a price level at which demand for a security is strong enough to prevent the price from falling further. Resistance, on the other hand, refers to a price level at which supply of a security is strong enough to prevent the price from rising further.

Support and resistance levels can be identified by analyzing past price data and identifying price points where the security's price has had difficulty breaking through. These levels can be used as a guide for setting stop-loss orders, determining potential entry and exit points for trades, and identifying potential trends.

Support and resistance levels can be horizontal or dynamic. Horizontal support and resistance levels are levels that have been established over a long period of time and tend to be relatively stable. Dynamic support and resistance levels, on the other hand, are constantly changing based on market conditions and tend to be more flexible.

These are examples of Support and Resistance under Uptrend and Downtrend conditions.

How do we trade support and resistance?

In the most basic way, this is how support and resistance are normally traded:

Trade the Bounce

  • Buy when the price falls towards support.

  • Sell when the price rises towards resistance.

Trade the Break

  • Buy when the price breaks up through resistance.

  • Sell when the price breaks down through support.

As you can see, this zigzag pattern is making its way up. This would be a bullish senario.

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