Describe The Importance Of Support And Demand

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Supply and Demand
One of the widely used concepts in trading is Support and Resistance. Share prices are determined by supply and demand. Supply is arises from selling activity whereas demand arises from buying. Increase in supply or selling activity leads to fall in stock prices whereas increase in demand or buying activity leads to increase in stock prices. In this way the forces of demand and supply drive the stock prices with movement in the favour of the stronger force.

Support and Resistance
Support is the price level in a stock which is believed to bring in buying momentum. At support, the stock price is believed to bring in a demand amongst the buyers and thereby prevent the prices from declining further. At supports, buyers generally find stocks more
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Inclined Supports and Resistance- These are formed when supports or resistances at increasing or decreasing price levels are joined to create trend lines.

Importance of Support and Resistance
1. It also gives signals to traders and investors when to enter or exit a stock.
2. Supports and Resistance helps traders and investors to identify trends in the stock prices.
3. Supports and Resistance can be used to identify chart patterns as Head and Shoulders, Double top to determine stock trends more accurately.

Conclusion
When a stock price approaches an important support level, it is thought that at those levels buying pressure would be greater than selling pressure and a potential reversal can take place and traders can look to go long. On the other hand, when a stock price approaches an important resistance level, it is assumed that there will be more of selling pressure and a potential reversal can take place and traders can look to go short. In such a case if support or resistance level is broken, it can cause a change in the dynamics of the supply and demand. Breakout of resistance levels signal that bulls have gained more ground and breakdown of support levels signals that bears are gaining more

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