Resistance Become Support
Exercise 1: Find the support and resistance zones. Show exercise
Exercise 2: Find the support and resistance zones. Show exercise
Exercise 3: Find the support and resistance zones. Show exercise
Resistance may become support
When one side has defeated the other, the price breaks through a support or resistance level.
When the price breaks through support or resistance, it is not uncommon for the price to come back to the breakout level before it continues.
A support can become resistance or resistance can become support in these instances.
The illustration below shows that, the price broke through a resistance level. This depicts that at this price, the buyers defeated the sellers.
Number 1: Price finds resistance
Number 2: Price breaks through resistance
Number 3: Price comes back to the previous resistance level that has now become support
Closing a position:
Long position: Sell the asset back to the market.
Short position: Buy the asset
As the price continued to rise, the sellers at the resistance level will take loss.
The price returns to the previously established resistance level.
A buying pressure is created in the market by the traders that went short would close their losing positions.
The traders who have not entered the market so far will also enter.
They will enter new long positions at this price level hoping a increase in price.
The extra buying pressure will keep the price rising.
The previously established resistance turn into a support level.
An overview of the lesson discussed so far….
At the resistance level, there are adequate sellers to stop the price from rising further and reverse the price to the downside.
Place horizontal lines on a chart where the price seems to stop repeatedly to find the support and resistance levels.
When our approach is stable, we can use the wicks or the bodies of the candlesticks to draw support and resistance.
Support can become resistance and resistance can become support.
We need to be careful to avoid false breakouts.
The price may pretend to break through support or resistance, but will reverse again in the opposite direction.