Support and Resistance
Support and resistance levels are significant levels, from which the price often bounces off, and trading trend reversals and breakthroughs are among the most popular methods for selecting market entry points.
The dynamic and sometimes volatile price movements are the result of the continuous change in the balance between supply and demand. When supply exceeds demand, prices fall. If there is not enough supply to meet the demand, an upward movement will occur.
Support and resistance levels are significant levels, from which the price often bounces off, and trading trend reversals and breakthroughs are among the most popular methods for selecting market entry points.
The dynamic and sometimes volatile price movements are the result of the continuous change in the balance between supply and demand. When supply exceeds demand, prices fall. If there is not enough supply to meet the demand, an upward movement will occur.
Support and Resistance Zones
Support and resistance levels cannot always be determined as a line. Sometimes it is more useful to define a zone instead.
There is no single price level at which sellers enter the market. Sellers gain the upper hand over the buyers at different price levels. Clearly recognizable, however, is a “zone” of resistance in which sellers enter the market.
Resistance can become support and vice versa
The course breaks a level of support or resistance as one side overcomes the other. If the course breaks support or resistance, it often goes back to breakthrough levels before moving further in the previous direction. In this case, a support can become the level of resistance, and vice versa.
False Breakout
If the price breaks a support or resistance level but then returns – this is called a false breakout.
If a trader wants to take a long position, as soon as the price breaks a resistance level, he waits until the previous resistance has proved to be a support level. This avoids getting started with a false breakout.
If a trader wants to take shorts as soon as a support level is breached, he will wait until the support becomes the resistance level to avoid a false breakout.