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Support and Resistance lines

What is it ?

Support’ and ‘resistance’ are terms for two respective levels on a price chart that appear to limit the market’s range of movement.

The support level is where the price regularly stops falling and bounces back up, while the resistance level is where the price normally stops rising and dips back down. The levels exist as a product of supply and demand – if there are more buyers than sellers, the price could rise, and if there are more sellers than buyers, the price tends to fall.

The more often a price hits either level, the more reliable that level is likely to be in predicting future price movements. It often happens that both levels become psychological barriers for traders, as they tend to buy or sell once a level is reached.

This only strengthens the result.

If a price touches or breaks through a support or resistance level but jumps back fairly quickly, it is only testing that level. But if a price breaks through any given level for a longer period of time, it is likely to keep rising or falling until a new support or resistance level is established.