Why support becomes resistance

B

BobbiDigital

I have seen this questioned and answered many times, and it's all been crap IMHO. I believe there is only one LOGICAL explanation which I'd love to dig deeper into be it via this thread, PM's or email with someone(s) willing to share and/or learn. The generic answer for now is liquidity, more importantly what that liquidity looks like (represents).

BD
 
Quote from BobbiDigital:

I have seen this questioned and answered many times, and it's all been crap IMHO. I believe there is only one LOGICAL explanation which I'd love to dig deeper into be it via this thread, PM's or email with someone(s) willing to share and/or learn. The generic answer for now is liquidity, more importantly what that liquidity looks like (represents).

BD
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Fear and greed.

Once a support is broken, buyers are now in pain and there are obviously more sellers so the price goes down.

When the price revisits the previous support, the unfortunate buyers see this as the last chance to get their money back, so they happily sell to liquidate their losing long position and break-even.

Also, traders who did not short the breakdown the first time now have a chance to join the new downtrend, so they sell too, and the price drops again.

Old support now becomes new resistance.
 
Quote from BobbiDigital:

I have seen this questioned and answered many times, and it's all been crap IMHO. I believe there is only one LOGICAL explanation which I'd love to dig deeper into be it via this thread, PM's or email with someone(s) willing to share and/or learn. The generic answer for now is liquidity, more importantly what that liquidity looks like (represents).

BD
More...

Because of losers waiting for the rescue and shorts who missed the earlier entry or want to re-enter.

From demand side, people may change mind or delay buying decisions.

Conclusion: a break may create supply and may reduce demand!
 
There's lots of times when support DOESN'T become resistance.

Sometimes I go through charts and see how the resistance of a previous move becomes pin-point, perfect support for a down leg some time later, and it seems magical.

But sometimes price will glide right up back through a previous support without a pause.

I know that sometime it seems amazing when it works, but if you draw a completely random horizontal line through price , it will likely provide a near perfect support/resistance at some point in the coming sessions.
 
Quote from pinkman:

I know that sometime it seems amazing when it works, but if you draw a completely random horizontal line through price , it will likely provide a near perfect support/resistance at some point in the coming sessions.
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Not true.

Support and resistance lines have a real predictive power, they are not just random lines.

The trick is to know how to draw them correctly. Unfortunately, this takes years and years of observation and practice.
 
Quote from xelite777:

Not true.

Support and resistance have a real predictive power, they are not just random lines.

The trick is to know how to draw them correctly. Unfortunately, this takes years and years of observation and practice.
More...

Support and resistance lines combined with a bunch of different skills make them work 50-60 percent of the time.
 
Quote from cmb:

Support and resistance lines combined with a bunch of different skills make them work 50-60 percent of the time.
More...

Where did you get that 50-60% winning rate number?
 
my personal stats. However this last 2 weeks were abysmal! usually I'm around %50 winning. I imagine better traders would be around 60% or more.
 
I feel like these are all textbook responses with no substance. Traders that move markets aren't flying by the seat of their pants nor are they losing money when price moves against their entry point. Anyone out there with me on that?
 
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