BLACKBOARD: The Support and resistance are one of the vital topics; after understanding supply and demand.
Often, you might heard technical analysts talking about the open-ended battle between bears and bulls or the struggles between buyers (demand) and sellers(supply).
Support and Resistance levels can be identifiable turning points, areas of congestion or psychological levels. The higher the timeframe, the more relevant the levels become. Finding the most important ones can take many hours of practice. They exist due to an influx of buyers or sellers at key junctures.
WHY DOES THIS HAPPEN?
Supply and resistance are psychologically important levels where many buyers or sellers are willing to do a trade. In order to short out the pressure, the market fluctuates the price range.
When the trendlines are broken; the market psychology shifts and establish new levels of support and resistance.
WHAT IS ROLE REVERSAL?
A trendline doesn’t stop to be an important area of support or resistance when it’s broken; rather, it’s simply revered. When a price breaks out from a trend line, the trend line becomes a support level moving forward; but the reversal needs to be a true reversal rather than a false breakout or breakdown, which commonly means that it’s accompanied by significant volume and a price hike.
Our upcoming educational post covers:
1. Importance of support and resistance?
2. How it differs from supply and demand?
3. Supply/demand Vs Support and resistance.
Stay tuned for more updates.