Support and Resistance are key concepts in technical analysis used by traders to identify price levels on a trading chart where a security tends to reverse direction.
1. **Support**: This is a price level where a downtrend can be expected to pause due to a concentration of buying interest. When the price of an asset falls to a support level, it is expected that buyers will step in and purchase, creating a “floor” that prevents the price from falling further. If the price breaks below this level, it indicates that the supply (selling interest) has exceeded the demand (buying interest).
2. **Resistance**: This is a price level where an uptrend can be expected to pause due to a concentration of selling interest. When the price of an asset rises to a resistance level, it is expected that sellers will step in and sell, creating a “ceiling” that prevents the price from rising further. If the price breaks above this level, it indicates that the demand has exceeded the supply.
Both support and resistance levels can be identified through historical price data and various technical analysis tools such as trend lines, moving averages, and chart patterns. These levels are not always exact and are often seen as zones rather than precise lines. Traders use these levels to make decisions on entry and exit points, stop-loss orders, and to understand potential future price movements.
