We all know how important and powerful understanding support and resistance levels can be when it comes to trading. Support level is basically the level or ground floor that price reaches and bounces upwards. Also, resistance is basically the level or roof top that price reaches and bounces downwards. Breakouts that occurs in the supports and resistance levels is known as support and resistance breakouts.
We all know that as far as the market is concerned, the price can continue to rise above the resistance level or continue to fall below the support level depending on strength of the buyers and sellers in the market. If there is a strong buying pressure at the resistance level and a breakout occurs, there is a strong possibility that the price would continue to move in an upward direction or continue the uptrend price movement. Also, if there is a strong selling pressure at the support level and a breakout occurs, there is a strong possibility that the price would continue to move in a downward direction or continue the downtrend price movement.
Resistance breakout is basically the point at which price finally crosses above the level of resistance as a result of strong buying pressure in the market. The selling pressure is usually high during the area of price resistance due to the sellers over powering the buyers in the market which causes the price to bounce back down. However, when a breakout of resistance occurs, it means that the buying pressure has taken control due to high demand in the market and high buyers’ momentum, causing the price to cross above the resistance level. When this happens there is a strong possibility that the price will continue to move in an upward direction.
Support breakout is basically the point at which price finally crosses below the level of support as a result of strong selling pressure in the market. The buying pressure is usually high during the area of price support due to the buyers over powering the sellers in the market which causes the price to bounce back up. However, when a breakout of support occurs, it means that the selling pressure has taken control due to high supply in the market and high sellers’ momentum, causing the price to cross below the support level. When this happens there is a strong possibility that the price will continue to move in a downward direction.
Price breakout above the support and resistance levels can serve as a very good buy or sell signal when it comes to trading. For breakout of support and resistance, there are two very common ways in which the support and resistance breakout can occur; either the price breaks above the support and resistance level and pulls back to the support resistance level which becomes the support level or resistance level for the price, or the price breaks below the support level and continues to fall downwards, or above the resistance level and continues to rise upwards.
Price breaks support and retest the support level before the continuation of trend - This is a situation where price eventually breaks through the support after ranging above the support level. However, after the break has occurred, the price retests back to the support level which becomes the resistance level for the price, before the trend changes or continuation of the trend.
Price breaks resistance and retest the resistance level before the continuation of trend - This is a situation where price eventually breaks through the resistance after ranging below the resistance level. However, after the break has occurred, the price retests back to the resistance level which becomes the support level for the price, before the trend changes or continuation of the trend.
Price breaks support and continues the trend - This is a situation where price eventually breaks through the support level and continues its downward price movement due to strong selling momentum in the market without retesting the support level which the price broke through. However, at some point in the downward price movement, the price would most likely pullback up before gaining more momentum to continue its downtrend movement.
Price breaks resistance and continues the trend - This is a situation where price eventually breaks through the resistance level and continues its upward price movement due to strong buying momentum in the market without retesting the resistance level which the price broke through. However, at some point in the upward price movement, the price would most likely pullback before gaining more momentum to continue its uptrend movement.
hi @designieplay
Interesting choice of topic. I will drop an upvote once voting power will recharge :)
Thanks for sharing your experience. Are you very active with trading?
I do fully agree with you, that understanding support and resistance levels is crutial. I would say that its more important than any other indicator I've ever learned about. It simply has so much to do with psychology. And understanding trading psychology is the most important factor if we want to succeed in that field.
Wouldn't you agree?
Yours, Piotr
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Thanks for checking up...
You are right... Support and resistance is considered by a lot of traders and investors as more important than most of the technical indicators on any chart simply because it truly represents well what is happening in the market
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