Support and resistance levels are essential technical points in our trading. If you can't even identify the support and resistance levels in the market, it will be difficult for you to survive long-term in the market.
Identifying the support and resistance levels of the market is the most basic trading skill for an ordinary investor. By determining the support and resistance levels, we can know when the price is being protected by bulls or bears within a certain range, only fluctuating within a specific area.
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We can identify the support and resistance levels in the market through technical analysis. When a trending market approaches support or resistance levels, a reversal may occur, or an increase or decrease may pause. Understanding the location of support and resistance levels can reveal many favorable entry trading opportunities and help in predicting target levels.
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In dense trading areas, when the market rises or falls multiple times near a certain price, a reversal or pause may occur. The highs and lows near support or resistance levels are concentrated in a relatively narrow area; the more highs or lows there are in that area, the greater the support or resistance. Additionally, there is the psychological effect on investors; when the expected support or resistance level appears, investors tend to trust the support or resistance effect of that price range, leading to increasingly frequent trades near those levels.
The longer the support or resistance levels last, and the more cumulative trading volume there is, the greater the support or resistance at that position.
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Speaking through the chart: We see that after a round of decline, the price has entered a consolidation phase, which is situated in a dense trading area. When the price approaches the highs or lows of the dense trading area, those highs or lows will act as resistance or support for the price. When the price operates within a range defined by these highs and lows, an increase near the upper edge of the dense trading area will encounter resistance, while a decrease near the lower edge will receive support. When the price is between the highs and lows of this dense trading area, we do not need to take action, as there is resistance above and support below, making the direction unclear.
Only when the price effectively breaks through the high point of this dense trading area can we enter to go long; only when the price breaks below the low point of this dense trading area can we enter to go short.