Support and Resistance
Support and Resistance: Fundamental Tools for Successful Trading
In the world of trading, understanding support and resistance levels is essential. These are core indicators in technical analysis that can greatly improve your ability to identify potential entry and exit points. Let’s dive into what support and resistance indicators are, how you can use them to your advantage, and what happens when these critical lines are breached.
To make things clearer, we’ll be using example charts to illustrate these concepts. Let’s start by understanding what support and resistance mean:
Support: When a price reaches a historical low, it is generally expected to rise from that level. This is known as support.
Resistance: On the other hand, when a price hits a historical high, it is typically expected to fall from that level. This is known as resistance.
Spotting Potential Buy Signals:
When prices touch a historical level of support, there is a general expectation that the negative momentum will cease, and the price will reverse its course. This can trigger a potential buy signal as the price touches the support line.
Spotting Potential Sell Signals:
If prices reach a historical price ceiling, known as resistance, it is expected that prices will stop at that level unless there is a significant external factor, such as excellent earnings, pushing prices past the historical resistance. Thus, a potential sell signal is triggered when the price touches the historical resistance line.
Understanding ‘Breaking Support or Resistance’:
Breaking support or resistance levels is a crucial concept in trading. When the price breaks below a support level, that support level can become the new resistance level. Conversely, when the price breaks above a resistance level, that resistance level can become the new support level. This shift can signal significant changes in the market.
Frequent Use of Support and Resistance by Traders:
Support and resistance are fundamental tools in technical analysis, and traders use them extensively across different time frames, including intra-day, daily, weekly, and monthly. Knowing these levels can significantly enhance a trader’s chances of making profitable decisions in the market.
Where to Begin Trading and Practicing:
If you’re interested in trading using technical analysis, take a look at our reviews of regulated brokers available in Papua New Guinea to discover the charting tools they offer.
Further Reading:
To deepen your understanding of technical analysis, explore concepts like Moving Averages, Relative Strength Index, and Stochastics. Additionally, check out our guide on reading candlestick charts and option trading strategies. If you want to know which instruments you can trade and practice support and resistance analysis with, our guides on CFDs, options, stocks, forex, cryptocurrencies, and bullion dealers will be helpful resources.
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