Support and resistance analysis is extremely important in day trading. This tool is used to help make trading decisions and identify when a trend may be reversing. Support analysis can often help a trader identify the best time to trade and earn a profit. For instance if a certain price level is reached, the trader might want to close his position because he knows the price level seldom rises past a particular resistance level. Or alternatively if the trader identifies a support level the price seldom falls below, he could use that information to help him decide on an entry point to his position.
Support is where you want to open a position because it’s the likely bargain price or “floor” that supports price from moving against you and protects you from potential losses. The closer your entry is to support, the smaller your losses.
Resistance is the area where you want to close a position because it’s most the likely best price you can expect to get when you close your position; it’s the area like a ceiling that resists further gains.