Importance Of Support And Demand

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Supply and Demand
One of the most widely used concepts in trading is Support and Resistance.
In the stock markets, share prices are driven by supply and demand. Supply is synonymous with selling activity whereas demand is synonymous 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 supply and demand drive the stock prices with movement in the favour of the stronger force.

Support and Resistance
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. It is considered that at support levels buyers find stocks more favourable for buying and seller finds do not find much of selling opportunities.
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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 like Head and Shoulder, Double top to determine stock trends more accurately.

Conclusion
When a stock price approaches an important support level, it is assumed that there will be more of increased buying pressure and a potential reversal and traders can look to go long. Similarly, when a stock price approaches an important resistance level, it is assumed that there will be more of increased selling pressure and a potential reversal and traders can look to go short. In case a support or resistance level is broken, it can a change in the dynamics of the supply and demand that been playing out so far. Breakout of a resistance level signals that bulls have gained more ground and breakdown of a support break signals that bears are gaining

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