In an attempt to predict the future price of a security or market, technical analysis is one method used. The fundamental analysis and the technical analysis may be used in conjunction by some investors; for example, they may use the fundamental analysis to decide what to buy and the technical analysis to determine when to buy.
Support and resistance are two of the most critical and actionable concepts in technical analysis, and they are also the most difficult to grasp. When the forces of supply and demand collide, support and resistance levels are critical points in time. Also, Technical analysts believe that these support and resistance levels are crucial in determining market psychology and supply and demand.
Support is defined as the point at which demand is strong enough to prevent the stock from falling any further in price. For example, in the chart below, you can see that it has difficulty breaking through to the resistance level whenever the price reaches the support level. As the price declines and approaches support, buyers (demand) become more inclined to purchase, and sellers (supply) become less willing to sell, according to the rationale behind the strategy.
Resistance is defined as the point at which supply is strong enough to prevent the stock from continuing its upward movement. The price struggles to move higher every time it reaches the resistance level depicted in the image below. As the price rises, sellers (supply) become more inclined to sell, and buyers (demand) become less willing to buy.
It’s safe to say that almost all trading strategies use support and resistance analysis in some way.
Support and resistance strategies must anticipate that the price will break these levels (Breakout and pullback strategies).
There is a time limit on the price’s willingness to honor support and resistance levels. Therefore, risk management is critical for traders who want their losses minimized if a breakout occurs.
Be mindful of the possibility for interpretation in technical analysis because it is not a scientific discipline. As your education progresses, you will almost certainly come across someone who says the technical analysis is more art than science. Hard work and dedication are essential to becoming an expert in any field.
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I'm Carina, a passionate crypto trader, analyst, and enthusiast. With years of experience in the thrilling world of cryptocurrency, I have dedicated my time to understanding the complexities and trends of this ever-evolving industry.
Through my expertise, I strive to empower individuals with the knowledge and tools they need to navigate the exciting realm of digital assets. Whether you're a seasoned investor or a curious beginner, I'm here to share valuable insights, practical tips, and comprehensive analyses to help you make informed decisions in the crypto space.