We might have looked at support and resistance separately, but when both are present, magic happens! Why, you ask?
Well, the more times the market declines to that specific level and then bounces off, the more significant and important the support level is.
And the more significant the support is, the more confident the traders might feel that the market will bounce off once more. Cool huh?
There are additional parameters that add to the significance of a support level though. For example, volume is one of them.
Obviously, it makes good sense to assume that a support level with buy trades in high volumes is more significant than one in low volumes.
It makes sense, right?
Additionally, time is another important factor. By this, we mean how recently the buying activity took place in the support area.
The more recent, the more important!
You might feel much more confident buying into a support area that has been tested a few times in the last weeks or months compared to the last decade.
Of course, all of the above also applies to the concept of resistance as well.
One more tip before we wrap up!
Is it safe to assume that when the price hits the support or the resistance level that consequently the price will rebound? Unfortunately, the answer is no.
Nothing is 100% guaranteed!
But the good news is, now you know about support and resistance!
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