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Support and resistance

Support and Resistance

Support and resistance are key concepts in technical analysis used to identify price levels where a stock or asset tends to stop or reverse its trend.

Example

A stock consistently finds support at $50, meaning it tends to stop declining at that price. At the same time, it faces resistance at $60, where upward price movements often reverse.

Key points

• Support: A price level where demand prevents further price declines.

• Resistance: A price level where selling pressure caps upward price movements.

• Important for identifying potential buying and selling points in trading.

Quick Answers to Curious Questions

How do traders use support and resistance in decision-making?

Traders identify these levels to determine when to enter or exit positions, expecting price reversals at these points.

What factors influence the formation of support and resistance levels?

Support and resistance are influenced by market psychology, supply and demand, and historical price action.

How can the breaking of support or resistance levels impact trading strategies?

A break of support or resistance can signal a continuation of the trend, prompting traders to adjust their strategies.

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