Trading in any financial market can be exciting yet at times unpredictable. Despite ongoing changes in price, traders often rely on key concepts to make informed decisions. One of the most fundamental concepts are support and resistance. These levels stand out as crucial tools that help traders navigate the volatility of the market.
Support and Resistance?
Support and resistance are crucial technical analysis concepts. In short, they represent price levels at which an asset tends to find buying (support) or selling (resistance) pressure. By way of illustration, imagine them as the floor and ceiling of a trading range, whereby prices bounce between these levels. There is always value in knowing your top and bottom.
Anticipate Price Movements
Understanding these levels can be a game-changer for all traders. For example, when an asset’s price approaches a resistance level, it may experience increased selling interest as traders perceive it as an ideal time to sell. Conversely, when prices near a support level, traders may perceive this as a bargain.
Entry and Exit Points
Support and resistance levels provide traders with clear entry and exit points for their trades. In light of a strategy, buying near support and selling near resistance can be a profitable strategy. Further, these levels assist traders to set stop-loss orders to limit potential losses and take-profit orders to secure profits made whilst trading.
Confirmation, Validation & Time Frame
Experienced traders often look for multiple indicators to confirm whether a support or resistance level will prevail. Market Spotter’s indicator the MACD Pulse and RSI Rocket helps provide confluence at these levels of support or resistance. It is important to note, support and resistance exists on all time frames. Short-term traders may focus on intraday support and resistance, whilst long-term investors may consider weekly or monthly levels.
In conclusion, support and resistance are invaluable for all types of traders. Being able to identify these levels, traders are in a better position to predict price movements, establish entry and exit points and develop a trading strategy. Market Spotter has created an indicator that identifies levels of support and resistance, called the Support Shield. By incorporating support and resistance analysis into your trading can enhance your ability to make more informed decisions.
