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Why Support and Resistance?

Support and resistance are foundational concepts in trading. They represent points on a chart where the price tends to find resistance as it rises or support as it falls. These levels are crucial because they often indicate potential trend reversals or continuations.

The Battle of Bulls and Bears

Trading is essentially a battle between two forces: the Bulls (buyers) and the Bears (sellers). Every trade has a buyer and a seller, and the outcome depends on who is more aggressive, who has more resources, and ultimately, who is right. Every day, as a trader, you’re trying to determine which side is stronger and align yourself with that side. When the momentum shifts, you need to be ready to switch sides.

Support and Resistance: The Basics

Support and resistance levels are where the market tends to change direction. These levels are based on crowd psychology. For instance, if a stock price is moving downwards and reaches a support level, it might bounce back up because traders believe it’s a good buying opportunity. Conversely, if a stock price is moving upwards and hits a resistance level, it might start to fall because traders see it as a selling opportunity.

Combining Candlestick Patterns with Support and Resistance

Candlestick patterns, which we discussed in previous lessons, can be combined with support and resistance levels for more potent trading insights. For instance, a bullish candlestick pattern at a support level might indicate a strong buying opportunity.