What Are Support And Resistance Levels?

Support and Resistance levels are fundamental concepts of financial markets that every trader should understand. Thankfully, these are simple concepts, although identifying them can be subjective and requires some practice and experience.

Support refers to price levels at which buying pressure is strong enough to prevent the price of an asset from falling further. It is a level where traders expect demand to increase, causing the price to bounce back up.

On the other hand, resistance refers to a price level at which selling pressure is strong enough to prevent the price from rising further. It is a level where traders expect supply to increase, causing the price to reverse and fall.

👊 Support And Resistance Levels Explained 👊 for FX_IDC:EURUSD by FOREXN1 — TradingView

How To Use Support And Resistance Levels?

Support Levels: Let’s say gold’s current price is $1,900 per ounce, and it has consistently rebounded from the $1,850 level multiple times over recent weeks. In this case, $1,850 can be identified as a strong support level. Traders who are bullish on gold might view this as an opportunity to “go long” or buy, anticipating that the price will bounce back and climb higher.

Resistance Levels: Now, imagine gold’s price steadily climbs to $2,000 but struggles to surpass this level despite multiple attempts. In this scenario, $2,000 represents a strong resistance level. Bearish traders may seize this opportunity to “short” or sell, expecting the price to reverse and trend lower.

Traders rely on various tools to pinpoint these levels, such as trend lines and moving averages. With that foundation, let’s move on to the next critical concept: Trends!