Support and resistance are two of the most basic concepts in technical analysis. Mastering them can help traders identify potential entry and exit points, manage risk, and improve their overall trading strategy. Whether you're a beginner or an experienced trader, understanding how support and resistance work is crucial for making informed market decisions.
What is Support and Resistance?
> Support: A price level where demand is strong enough to prevent further fall. It works as a floor, where the buyers step in and push up the price.
> Resistance: The price level that selling pressure makes it impossible to go higher; it acts like a ceiling and sellers dominate at this point; hence, prices fall.
How to Identify Support and Resistance Levels?
1 Price Levels: Search for historical price action where price has reversed at the same level multiple times.
2 Trendlines: Connect higher lows if in an uptrend or lower highs if in a downtrend with diagonal trendlines.
3 Moving Averages: Using moving averages such as the 50-day or 200-day MA, find dynamic support and resistance levels.
4 Fibonacci Retracement: Typical strong levels of support or resistance tend to appear at 38.2%, 50%, and 61.8%.
5 Psychological Levels: The round numbers 10,000, 50, or 100 often are used as strong support/resistance zones.
How to Trade Using Support and Resistance?
1. Bounce Trading: Buy near support and sell near resistance.
2. Breakout Trading: When price breaks above the resistance level or breaks down below the support, enter the trade with strong volume.
3. Retest Confirmation: After a breakout, wait for the price to retest the previous level as new support or resistance before entering.
Mastering Support & Resistance Takes Practice!
- Keep practicing chart analysis.
- Combine with indicators like RSI, MACD, or volume analysis for confirmation.
- Back test strategies before applying them to live trades.
