What is support and resistance in trading?

In trading, support and resistance are essential tools used to understand price movements. They help traders predict how a stock or market will behave and make better trading decisions. These levels act like barriers where prices often pause, reverse, or break through.

What is Support?

Support is a price level where the stock tends to stop falling because of strong buying interest. It’s like a floor that prevents the price from going lower. When prices approach a support level, traders expect them to bounce back up.

Example: If a stock’s price has repeatedly stopped falling around ₹500, this level is considered its support.

What is Resistance?

Resistance is the opposite of support. It is a price level where the stock tends to stop rising because of strong selling pressure. It acts like a ceiling that prevents the price from moving higher. Traders expect the price to drop when it reaches resistance.

Example: If a stock’s price struggles to go above ₹1000, this level is its resistance.

Why Are Support and Resistance Important?

Support and resistance are crucial for traders to:

• Identify entry and exit points.
• Set stop-loss and target levels.
• Understand market trends and price patterns.

How to Identify Support and Resistance

Here are some common ways to find support and resistance levels:

• Historical Prices: Look for levels where the price has consistently bounced off in the past.
• Trendlines: Draw lines connecting the highs and lows on the chart.
• Moving Averages: Use indicators like the 50-day or 200-day moving average.
• Round Numbers: Prices like ₹1000 or ₹500 often act as natural barriers.

Breaking Support and Resistance

Sometimes, the price breaks through support or resistance levels. This can indicate a strong trend. When support is broken, it often becomes the new resistance, and when resistance is broken, it can become the new support.

Example: If a stock crosses ₹1000 (resistance) and stays above it, ₹1000 might now act as support.

Conclusion

Understanding support and resistance levels can make you a smarter trader. These levels help you plan your trades, minimize risks, and increase profits. Always remember, practice and analysis are key to mastering these concepts.