When it comes to support and resistance, the market can react in various ways …
As you take your technical analysis training, the following are some patterns that can be observed when that happens in the market .
One we might call “touch and away” as if the market is trying to reach on for some level of support and resistance, and when it gets close , it turns and retreats, as if there was a build-up of pressure that is suddenly released . This is an exhaust . This is a formation where there is holding of the resistance level. It is a pattern that seems like it is trying to break its way through , by “chewing” or “worrying” the support or resistance level like a dog and his bone, but it fails , it does no break on through, and instead the market turns suddenly and goes in the direction opposite.
Yet another way that support/resistance is able to give way is when prices jump through the anticipated level of resistance and then they get higher still. The gap, or as we call it, the “pop” can occur quickly and may surprise a trader . In these days of 24-hour markets and electronic trading platforms there are fewer gaps like this that occur since trade occurs overnight and not a lengthy period of no trading . Nevertheless we do see gaps occur , and we need to know how to trade them . One thing to remember as you take technical analysis training course is that when broken , support becomes resistance and resistance becomes support . Generally we will see the new price level test the previous support/resistance and will then go on towards the pop .
The third major way that support and resistance breaks down is that the anticipated barrier is sliced through by prices as a knife cuts through soft butter, as if there were no support or resistance there at all …. and that’s exactly what occurs . Price quickly scoots right on through . We see this occur when on one time frame we anticipate support or resistance but there is no backup from a time frame that is higher. For example, if resistance is seen on the daily but to that point the weekly chart shows nothing – we should stay alert.
This is a really important point in your technical analysis training course – when in reality, the phenomena you believe is there, really isn’t. It is a situation where the time period of lower technical analysis shows support, but it does not exist in the real world , or if it does exist in reality it is slight and weak and has little or no effect on the market . The astute multiple-time-period-trader will realize what is happening because no higher time period tools setting up the area will be there. The good thing in this situation is that we can see it quickly and you can quickly see the negative pattern and there is not any resistance or support occuring in the area.