Head and Shoulders Pattern This is an important point to remember because it will help answer many of the questions you may have about how support and resistance work and why do they matter. Another note we would like to address is the fact that sometimes the terms supply, bearish, bears and selling are used as synonyms.
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In the same way, the terms demand, bullish, bulls and buying can be used as synonyms. If you happen to read something about bears and bulls in the same context, then it probably has to do with selling and buying.
But enough introductions — what are support and resistance and what do they have to do with supply and demand? What is support? As weve already established, market values are driven by the levels of supply and demand.
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- With it you take into account historical levels that a certain currency, stock, commodity or index has reached and reversed from.
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When a market value of an asset is relatively low but there is a high enough demand to prevent it from decreasing any further, we have a support. This is easy to imagine — as the price of an asset drops, more people are willing to predictive binary options trading strategy because of the lower prices hence the demand increases.
However, with lower prices, sellers are less inclined to sell. The support is the level where the two trends meet. However, it is quite possible for a support to be broken after it has been established for one reason or another.
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If the sellers are willing to sell at even trading from levels in binary options prices, for example, then the level of the support has to be decreased a new support needs to be established. Where is support established?
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- Below we look at what support and resistance areand the major forms they can take, such as Horizontal, Diagonal, Historic and Predictive.
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In a vast majority of the cases, supports are below the price of the asset at the moment, but its not unheard of for a security to trade at financial values near the support level. Its sometimes difficult to establish the exact support levels due to the inherently complicated nature of technical analysis.
What is resistance? Resistance is the polar opposite of support.
The tips range from where to draw the lines, to how to confirm the lines, ways to trade and how to derive some targets. For more information on what, why and how support and resistance lines work check out my other articles on the subject. I have been using these lines for over a decade and can say, with confidence, that they are a very valuable tool for traders and one that should not be ignored. No other indicator can give you as precise a target for potential entries and exits.
If the price of a security is relatively high but the supply levels are high enough to prevent it from rising any further, then we have a resistance. Even though the price is a bit high, buyers are still willing to make purchases.
The level of resistance is established where the two trends meet.
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The idea in the end is that the result will be higher supply than demand, thus preventing the eventual rise of the price any further. Just like with support, it is quite possible for the trend to be broken, signaling that the buyers are more willing to make purchases even though the price is high.
In this case usually a new resistance has to be established. Where is resistance established?
Just like supports are usually below the current price, resistance is above it. However, its common for a security to trade at financial values near the resistance levels. Everything weve said about supports holds true about resistance, only on the other side of the spectrum.
They are plotted on a chart to help determine the direction in which asset prices are likely to head. You can imagine how useful they are when they have been plotted accurately. A lot of beginning traders — particularly those who are unaccustomed to charting price action — think support and resistance lines are complex. In reality, they are relatively simple.
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