The formation principle of the resistance level at the previous high is that the price level where bullish investors enter the market may be near the peak of a market trend. When the price forms a peak and then retreats, many investors' reaction is to not acknowledge the loss and choose to continue holding their long positions. When the price returns to the previous high, investors who bought near this position will rush to close their positions to break even.
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At the same time, investors who bought at a lower price see the price rise to the vicinity of the previous high and experience stagnation, which also leads them to take profits near the previous high. One breaks even, one takes profit, and at this point, the resistance level at the previous high is formed. The formation principle of the support level at the previous low is similar. The price level where bearish investors enter the market is often near the previous low. When the price forms a low and then rebounds, many investors do not stop-loss their short positions and choose to continue holding their shorts. When the price returns to the previous low, investors who sold near this position will also rush to break even.
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At the same time, investors who sold at a higher price see the price drop again to the vicinity of the previous low and experience a halt in decline, which leads them to take profits near the previous low. One breaks even, one takes profit, and at this point, the support level at the previous low is formed.