When it comes to trading stocks or other assets, there are two essential concepts you should know about: support and resistance. These are like the building blocks of trading, helping you make better decisions.
Support is like a safety net for prices. Imagine a trampoline. When the price of an asset bounces back up after falling, that’s like it hitting a trampoline. It doesn’t fall too far because the trampoline (the support) stops it from crashing to the ground. Support is a price level where demand for an asset is strong enough to prevent it from falling further. It’s like a price floor.
Resistance, on the other hand, is like a price ceiling. Think of it as a barrier that an asset’s price struggles to break through. Imagine trying to push a heavy object up a hill. The hilltop is the resistance. Prices often have a hard time going higher because there’s a lot of selling pressure, just like you need a lot of force to push something up a hill.
Traders use these concepts to make decisions. They might buy when the price hits support because they expect it to bounce back up. Conversely, they might sell when the price reaches resistance because they expect it to drop.
In simple terms, support is like a safety net that keeps prices from falling too low, while resistance is like a barrier that makes it hard for prices to go higher. Understanding these basics can help you become a smarter trader.
