In the trading world, understanding the price tag (price moment) is very important. This consideration involves understanding the Support and Resistance points on the chart to identify the price tag. Through this article we will help you understand more about the importance of Support and Resistance in trading.
This topic is a bit technical so be patient and give your full attention while going through the article. These basic principles (Support and Resistance) provide traders with critical insights into potential price points for each stock. Then let’s move on to a detailed discussion of Support and Resistance in the stock market.
What is Support in Trading?
In trading, Support represents a price level at which buying pressure becomes strong enough to prevent an asset’s price from falling further. Its basically act as a floor where demands outweighs supply. When the stock price approaches a support level, buyers generally become engaged and try to increase demand and drive up the price.
For example, if a stock repeatedly falls to a price level of 250, but each time buyers step in and push the price back up. Here the price point 250 acts as a Support level and usually buyers may place the stocks bought near this level expecting another bounce.
What is Resistance in Trading
If you are familiar with the Support then it should be easy to understand the resistance level. Resistance refers to a price level which is strong enough to prevent an asset’s price from rising further. This level acts as a ceiling point where supply overwhelms demand.
For example, just imagine, the stock price repeatedly trying to reach a price point of 300 but falling, with sellers consistently pushing the price back down. Here the price level 300 acts as a resistance level. Generally, traders will place orders near to this level while anticipating a price reversal.
Can we determine Support and Resistance Level Dependable?
Traders must know that Support and Resistance level is a useful basic tool, but its not fully reliable. These levels highlight the area of potential price action but not giving any guarantee outcomes. Market trends can vary time by time due to several factors such as political events, global economy, all these can override established levels.
A price level may break through a level of strong perceived support or resistance if a strong catalyst is present. Also, because of the subjectivity involved in drawing these levels, different traders may identify different areas, which may lead to different interpretations.
So rather than using support and resistance as the basis for trading decisions, it is essential to combine them with other technical indicators and risk management techniques. These levels work best when they are consolidation areas where the potential for price action is confirmed by other indicators.
In any case, Support and Resistance are key concepts in technical analysis that provide traders with key information about possible market changes. By understanding and using Support and Resistance effectively, traders can improve their decision making, manage risk and increase their chances of success.