Support and Resistance Levels
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What are Support and Resistance Levels?
Support Level: This is a price level where a downtrend can be expected to pause due to a concentration of demand. As the price drops towards the support level, it is believed that traders will begin to buy the asset, thus supporting the price and preventing it from falling further.
Resistance Level: This is a price level where an uptrend can be expected to pause due to a concentration of selling interest. As the price rises towards the resistance level, it is believed that traders will begin to sell the asset, thus resisting the price from rising further.
Classification of Support and Resistance
1. Horizontal Support and Resistance:
These are levels drawn using previous highs and lows on a price chart.
Example: If a stock has previously fallen to a specific price and then reversed, that price is considered a support level. Conversely, a level where the price previously peaked before falling is considered a resistance level.
2. Trendline Support and Resistance:
These are levels drawn by connecting two or more price points and extending the line into the future.
An upward trendline is created by connecting the lows in an uptrend, which acts as support.
A downward trendline is created by connecting the highs in a downtrend, which acts as resistance.
3. Dynamic Support and Resistance:
These are levels provided by moving averages or other dynamic indicators.
Example: A 50-day moving average might act as support in an uptrend and resistance in a downtrend.
Fibonacci Retracement Levels:
These levels are drawn by using the Fibonacci sequence to identify potential reversal levels.
Common retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%.
Psychological Support and Resistance:
These levels occur at round numbers that traders perceive as significant.
Example: Levels like 1.2000 in EUR/USD or 50.00 in a stock price.
Keywords
Support, Resistance, Technical Analysis, Forex Trading, Futures Market, Trendlines, Moving Averages, Fibonacci Retracement, Psychological Levels, Horizontal Levels, Dynamic Levels, Price Action, Trading Strategy, Market Trends, Chart Patterns
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