What is support and resistance ?

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# **What is Support and Resistance?**

Support and resistance are **key technical analysis concepts** that help traders identify important price levels where the market tends to react. These levels act as **barriers** that influence price movements, making them essential for trading strategies.

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## **1️⃣ What is Support?**

📌 **Definition:**
Support is a price level where buying pressure is strong enough to **prevent the price from falling further**. It acts as a floor where demand overcomes supply, causing the price to **bounce upward**.

📌 **Why is Support Important?**
- Indicates **potential buying zones**.
- Helps traders set **stop-loss levels** below support.
- Provides entry points for **buy trades** when the price bounces.

📌 **Example of Support:**
If **Nifty 50 repeatedly bounces from 18,000**, it means this level is acting as a strong **support zone**.

📌 **How to Identify Support Levels?**
✅ **Previous Swing Lows** – Look at past price action to find levels where price reversed.
✅ **Fibonacci Retracement Levels** – Key levels like **61.8% or 38.2%** often act as support.
✅ **Trendline Support** – In an uptrend, a diagonal trendline can act as support.
✅ **Moving Averages (50 EMA, 200 EMA)** – These act as dynamic support zones.

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## **2️⃣ What is Resistance?**

📌 **Definition:**
Resistance is a price level where selling pressure is strong enough to **prevent the price from rising further**. It acts as a ceiling where supply overcomes demand, causing the price to **reverse downward**.

📌 **Why is Resistance Important?**
- Indicates **potential selling zones**.
- Helps traders set **stop-loss levels** above resistance.
- Provides exit points for **sell trades** when the price gets rejected.

📌 **Example of Resistance:**
If **Bank Nifty struggles to break above 45,000**, that means this level is acting as a strong **resistance zone**.

📌 **How to Identify Resistance Levels?**
✅ **Previous Swing Highs** – Levels where price was rejected before.
✅ **Fibonacci Levels** – **61.8% or 38.2% retracements** act as resistance.
✅ **Trendline Resistance** – A downward trendline can act as resistance.
✅ **Moving Averages (50 EMA, 200 EMA)** – These act as dynamic resistance.

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## **3️⃣ Types of Support & Resistance**

### **🔹 1. Horizontal Support & Resistance**
- Fixed price levels that hold over time.
- Example: If **Reliance stock finds support at ₹2,400 multiple times**, that’s horizontal support.

### **🔹 2. Trendline Support & Resistance**
- Found in trending markets by drawing diagonal lines.
- Example: An **uptrend line** connecting higher lows acts as support.

### **🔹 3. Moving Average Support & Resistance**
- Dynamic support/resistance levels.
- Example: If **Nifty bounces from the 200 EMA**, it acts as support.

### **🔹 4. Fibonacci Support & Resistance**
- Price often respects Fibonacci retracement levels (e.g., **61.8%**).
- Example: If **Bank Nifty reverses from the 38.2% retracement**, it acts as resistance.

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## **4️⃣ How to Use Support & Resistance in Trading?**

### **🔹 1. Trading the Bounce (Reversal Strategy)**
✅ **Buy near Support** – If price shows a bullish reversal at support, enter a buy trade.
✅ **Sell near Resistance** – If price gets rejected at resistance, enter a sell trade.

📌 **Example:**
- If **Nifty forms a bullish engulfing candle at support**, it’s a buy signal.
- If **Bank Nifty forms a shooting star at resistance**, it’s a sell signal.

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### **🔹 2. Breakout Trading Strategy**
✅ **Breakout Above Resistance** – Signals bullish momentum.
✅ **Breakdown Below Support** – Signals bearish momentum.

📌 **Example:**
- If **Reliance breaks ₹2,500 with high volume**, enter a buy trade.
- If **Nifty breaks below 18,000**, enter a short trade.

📌 **Tip:** Always wait for **retest confirmation** before entering.

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### **🔹 3. Support & Resistance with Indicators**
📌 **RSI + Support** → If RSI is **oversold** at support, strong buy signal.
📌 **MACD + Resistance** → If MACD shows bearish divergence at resistance, sell signal.

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## **5️⃣ Live Example: Support & Resistance in Nifty 50**

| **Date** | **Price Level** | **Support/Resistance?** | **Trade Setup** |
|---------|--------------|------------------|---------------|
| Feb 10 | 17,800 | Strong Support | Buy Signal |
| Feb 12 | 18,200 | Resistance | Sell Signal |
| Feb 15 | 18,000 | Support Retest | Buy Signal |

📌 **Observation:**
- **Buying near support** (17,800) gave a profitable long trade.
- **Selling near resistance** (18,200) gave a good short trade.

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## **6️⃣ Mistakes to Avoid in Support & Resistance Trading**
⚠️ **Ignoring Volume** – Confirm breakouts with high volume.
⚠️ **Trading False Breakouts** – Always wait for **retest confirmation**.
⚠️ **Forgetting Stop Loss** – Always set SL below support or above resistance.

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## **7️⃣ Conclusion**
✅ Support & Resistance levels help traders find high-probability trading setups.
✅ They can be combined with **trendlines, moving averages, and indicators** for better accuracy.
✅ Always follow **risk management** and wait for confirmation before entering trades.

📌 In future lessons, we will cover:
- **How to Draw Perfect Support & Resistance Levels**
- **Advanced Trading Strategies Using S&R**
- **Live Chart Analysis of Support & Resistance**

Stay tuned for more insights!

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🔹 **Disclaimer**: This content is for educational purposes only. *SkyTradingZone* is not SEBI registered, and we do not provide financial or investment advice. Please conduct your own research before making any trading decisions.