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Technical analysis guide

Support and Resistance

Big Idea: To most investors/traders, support and resistance levels are the number 1 most commonly used price action tool for gauging when to enter and exit trades. It is also one of the easiest indicators to see even without having to put much effort into spotting them on a chart.

Understanding Support And Resistance

Support and resistance helps traders identify points in the chart where we might find a reversal points. The basic concept of support and resistance is through supply and demand levels. It uses different levels on the charts to identify where there is buyer interest or seller interest. 

How to Identify Support And Resistance

Using historical data, we can identify levels on the chart where we may see reversals happen in the future.  One way to do this is to look for V's and upside down V's on the chart. This will show us a pivotable point where a level of support or resistance may lie.

Support Zones

Support zones, by definition, are areas or price points that act as a level of demand for buyers. In other words, when the price of a certain pair/stock/crypto comes down to touch a level of support, it is an incentive for buyers to step in for the chance of price recovering to the upside. An important thing to note: if this indicator is easy to spot, then it is likely that most traders will spot the same thing, and that will make your trades more accurate in both the short and long term.
Support zones, technical analysis guide

Resistance Levels

Resistance levels, however, work in the same way, just vice versa. A recurring theme in business and economics is supply and demand. Support acts as a level of demand for buyers to want to get in while resistance acts as a level of supply. Basically, it means there is less demand for this pair at a higher price (the trade looked more attractive at a lower price). This also means that a level of resistance will be hard to beak and could cause price to fall back to support. Although any kind of indicator isn’t 100% accurate, support and resistance is still a great way to gauge entries and exits.
Technical analysis guide

Key Takeaways

Support levels act as areas if demand
Resistance levels act as areas of supply
One of the most commonly used tools in trading is support and resistance
There isn’t a perfect way to trade, but these setups help
Practice risk management to protect your account!

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