In the stock market, resistance refers to a significant price level at which a stock or market index tends to encounter selling pressure, preventing it from moving higher. This level acts as a psychological barrier where the number of sellers outweighs the number of buyers, causing the price to reverse its upward momentum. Resistance levels are often formed at previous peaks or areas where the price has struggled to surpass in the past.
How to use resistance in trading?
Traders often use resistance levels as key indicators to make trading decisions. When a stock approaches a resistance level, traders may choose to sell their positions or initiate short trades, anticipating a price reversal. Conversely, if the stock successfully breaks above a resistance level, it may signal a bullish trend continuation, prompting traders to enter long positions since the resistance then might change to a support.
How to find resistance levels in trading?
Identifying resistance levels requires technical analysis and chart interpretation. Traders look for patterns such as double tops, triple tops, or descending trend lines that indicate areas of resistance. Additionally, volume analysis can confirm resistance levels, as higher trading volumes often accompany price rejections at resistance. Utilising trading apps equipped with technical analysis tools can aid traders in identifying and monitoring resistance levels effectively.
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