A support level is a price level at which positive price pressure (buying activity) increases the price of an asset. A support level is identical to a resistance level except that the pressure is upwards instead of downwards, being driven by buyers rather than by sellers. Traders can identify support levels in various financial markets, such as the stock, forex, and commodity markets.
Support levels can be ‘tested’ by the price of an asset, and the more times this happens they stronger they are assumed to be. When this happens, the price of an asset declines, but as it approaches the support level, more and more buying activity drives the price back up. If and when the support level is broken through, this often marks the start of a new, bearish trend.
Resistance is the complementary concept that applies to price ceilings rather than floors. For some technical analysts, a failed support level can become a new resistance level for future trends, although not all traders are agreed on this phenomenon. Either way, both support and resistance levels are commonly used to identify new trends and confirm the strength of existing ones. As with resistance levels, support levels do not necessarily need to be at a fixed price, but may be plotted graphically by a diagonal line on a price chart.
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