Support and resistance are concepts of technical analysis that identify price levels where the market may have difficulty rising or falling. They are fundamental for understanding supply and demand and are used in trading strategies.
Support
It is the price level where demand is greater than supply.
It is the reaction of buyers to a price drop.
It is found at lower points on the chart, where the price has difficulty breaking through and continuing its decline.
Resistance
It is the price level where supply is greater than demand.
It is the reaction of sellers to a price increase.
It is found at higher points on the chart, where the price has difficulty overcoming and continuing its rise.
How to identify
Support is graphically identified by a line connecting several lows.
Resistance is graphically identified by a line connecting several highs.
Importance
Identifying support and resistance allows for planning the trading of the asset before it reaches these levels.
Breaking through price regions can increase the potential for gains.