Classic chart analysis is built upon the concept of support and resistance levels. By and large, support and resistance are thought of as precise numbers. For example, if a market drops to a price of 100, and then climbs to 110, the low at 100 is considered support. Resistance is a peak price: If the market then backs off and eventually bounces off 100, then resistance is at 110.
Short-term traders typically interpret support or resistance as low-risk levels at which to place trades. One technique during an uptrend is to buy a pullback that ends near a previous support point and exit the trade with a small loss if the support is broken. Similarly, in a downtrend, you would go short when a bounce stalls near a previous resistance level.
At what point can you say price has come close enough to the support or resistance level to warrant taking a position? Very rarely will a market trade to the exact level of a previous low and then rally. A solution is to plot support or resistance “zones” and use a setup to trigger a trade once the market enters the zone.
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