Support and Resistance

 Support and Resistance Trading

The simplest way to think about support and resistance is that they are areas or zones where the market changes direction or they are price levels that act as boundaries that a stock is bounced off more than once.

The market rising which turns bearish has met resistance and this resistance is the level the stock hits and comes back from, the resistance levels act as the ceiling for prices.

Support, which is the level above which the stock tends to stay, is the opposite of a bullish move. Let’s consider it to be the price's foundation.

When a stock's price bounces off a given value more than once, support and resistance levels are confirmed. The more the number of times this occurs, the stronger the level.

Areas of support and resistance might endure minutes, hours, days, weeks, or even years. As you study charts and learn about markets, you will come to realize that markets have very long memories. It also works on all timeframes.

In this example you can see here, that as the bulls push higher and the market turns, the market has met resistance, the bears caused the market to fall but then lose control to the bulls, and then the market has met support. The market is in a range when it is going sideways like this.

The most usual manner for the market to move is in this direction. However, keep in mind that when you're on live charts, it won't always appear as nice or be as easy to spot.

What causes support and resistance to occur?

When the price of a stock drops to a previous low, investors may be more interested in buying; they're seeking a good deal in the hopes of buying low and selling high. Investors may be more interested in selling and taking profits when a stock's price approaches a previous high.

Another explanation for the existence of support and resistance levels is that money managers frequently have similar price targets. This indicates that it's usual for a large number of stocks to be purchased at a certain price and then sold at a different price.

How Support and Resistance levels possibly help traders make decisions.

A bounce occurs when the price hits a support or resistance level and then reverses direction. As a result, when traders detect a stock's price approaching support levels, it may be time to place a buy order.

The more firm the support level, the more confident traders may be that the stock will bounce back up.

On the other hand, if the price reaches resistance levels, some traders may think it might be time to place a sell order. Support and resistance levels, on the other hand, do not act as strong price boundaries. However, this does not mean that the support and resistance zones are never broken. In fact, they are regularly broken.

What is a Breakout?

A breakout occurs when a stock moves beyond previous restrictions. Traders may perceive this as a good area to purchase after a breakout, expecting the stock would rise and grow, depending on the investors and whether they are bearish or bullish.

When an upward going stock breaks through resistance, the former resistance level frequently becomes new support.

An uptrend is defined as a market that makes higher highs and lower lows while moving in the opposite direction.

When the market breaks through support, it frequently turns into resistance. Lower highs and lower lows are currently being made in this market.

A downtrend is defined as a market that makes lower highs and lower lows. That is the fundamental difference between support and resistance

Ways in which support and resistance levels can be used

An investor looking to build a position might watch support levels for a buy signal, hoping that the stock will rally and break through the resistance zone.

An investor intending to liquidate a position might search for sell signals at resistance levels, or in some situations, a chance to buy a short position and profit from the stock's decline.

You will use support and resistance levels as buy and sell signals in different ways, Depending on the type of investor you are.

 For example, very active investors like swing traders use these support and resistance levels to buy and sell often, possibly even on the same day.

Less active trend traders can simply use breakouts to confirm a trend's direction. Technical analysis is based on the notions of support and resistance.

Some investors like to use solely support and resistance to make trading decisions, while others prefer to combine it with other technical analysis tools and approaches.

You will gain a better understanding of the market if you grasp Support and Resistance.

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