Support and Resistance

12 June 2016, 08:07
Sherif Hasan

Support and resistance is one of the most widely used concepts in trading.

One thing to remember is that support and resistance levels are not exact numbers. Often times you will see a support or resistance level that appears to be broken, but soon after find out the market was just testing it.

The primary reasons markets behave in this fashion is because of supply and demand and market psychology. At support levels the number of buyers generally exceeds the number of sellers which pushes the price back up, and at resistance levels the number of sellers exceed the number of buyers causing the price to go back down.

This can occur frequently in a range until new information is available that shifts the price to a new range, in which case new support and resistance levels would be established.

Support and resistance analysis is an important part of trading because it can be used to select trading opportunities, where to buy or sell, where to take profits and where to cut losses.

For example you might want to take profits because you know the price has risen to a particular resistance level. Or alternatively if you identify a support level and, the price falls to said level, you could use this information to help you decide an entry point for a long position.

Support and resistance is a powerful tool every trader should understand, and use to their advantage to give themselves the best possible price to enter and exit the market.


Share it with friends: