The Basics of Support and Resistance Levels

10월 15일

Support and resistance levels are fundamental concepts in technical analysis, widely used by traders across asset classes, strategies, and trading techniques. In this post, we’ll cover the basics of support and resistance so that any trader following us here on TradingView can have a foundation to work with.

What is Support?

Support is a price level where a falling asset tends to stop and reverse direction. In the chart above, utilizing FOREXCOM:EURUSD, you’ll see some lines drawn, showcasing this example. Support is a concept that is drawn on the chart to help predict or forecast where other buys may step in based on the preceding rate fluctuations.

When an asset’s price drops to this level, buyers can often step in, preventing further decline and typically causing the rate to rise again. The support level acts as a floor that the asset’s price struggles to break below, usually testing it multiple times. Support levels can be identified on charts across various timeframes and are not exclusive to bear markets; they also appear in bull markets as higher support levels are established.

What is Resistance?

Resistance, on the other hand, is a price level where an asset’s upward movement is continuously halted by selling pressure. When the rate reaches this level, sellers usually dominate, often causing the price to fall back. This level acts as a ceiling that the asset’s price struggles to break above, bouncing off it as a result. Like support, resistance levels can be found in both bear and bull markets and are crucial for identifying potential price reversals.

Why are Support and Resistance Levels Important?

Traders use support and resistance levels (along with other technical and fundamental data) to help them make informed decisions about when to enter or exit trades. For instance, buying near a support level can be profitable if the market bounces back, while selling near a resistance level can capitalize on the move before a downward reversal.

In summary, support is a method for locating potential bottom areas and resistance is a method to locate potential topping areas.

The best way to get started with Support & Resistance is to draw out the levels yourself and use a demo account to test out the concepts. This way, you can practice, review, and learn about these levels without risking real funds.

Did you learn something new?

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