Support

What Is Support in Trading?

Support in trading refers to a price level at which an asset typically experiences buying interest, preventing further decline. This level serves as a "floor" owing to the strong buying pressure at that price zone. Here are the fundamental aspects of support:

Key Characteristics

Formation:

- Occurs due to high buying volume at a specific price level.

- Can be identified by analyzing historical price data and identifying areas where the price has consistently rebounded.

Types of Support:

- Horizontal Support: Generated by plotting a horizontal line through historical lows.

- Diagonal Support (Trend Lines): Created by connecting ascending or descending lows.

Reversal Point: When a support level is breached, it often transforms into a new resistance level.

Application in Trading

Predictive Analysis:

Traders utilize support levels to forecast potential reversal points, indicating favorable buying opportunities.

Risk Management:

Aids in setting stop-loss orders to manage potential losses.

Challenges

It is risky to rely solely on support levels. It is advisable to combine them with other technical and fundamental analysis tools. Support levels are crucial for understanding market dynamics and making well-informed trading decisions.