Support is a form of technical analysis indicator that predicts whether the value of an asset will rise or fall. A trader looks at the price movement of investment and marks trendlines along regions where the price has previously bounced back, implying a greater demand than supply for the commodity.
A support line is a price level that has been tested twice without falling below it. When the trader sees many supports for an asset’s current price level, they interpret this as a positive indicator that the asset is undervalued and will rise in value.
When a market is expanding, sellers raise the asset’s support level by purchasing it at a bargain price. The support line may be horizontal or inclined up or down in relation to the general price trend. Traders can utilize other technical indicators and charting methods to find more advanced types of support.
How to Determine Support in Trading
In trading, analysts may identify different types of support. The value of the market is frequently based on a strong foundation, which is the basis for market price. The floor of a market is the lowest price at which buyers will buy. On the other hand, a ceiling is the highest price at which sellers are willing to sell.
The roof, in contrast, is a point above which there isn’t much interest, and the price won’t rise much higher. Support is a significant signal of a trend reversal. It demonstrates that the market has previously been steady, and there have been no considerable price drops since then.
The Correlation between Support and Resistance
A support level is a price point at which demand exceeds supply. A support level may be considered a floor, with resistance being the opposite – a ceiling where prices cannot rise any higher.
The opposite of a support level is resistance, where traders sell because they believe the price will drop, which means demand falls below supply.