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Why exactly does previous support tend to become resistance?


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Why exactly does previous support tend to become resistance?

  #11 (permalink)
 JustinIsHere 
Montreal, Canada
 
Experience: Beginner
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Take a look here: Support and [AUTOLINK]Resistance[/AUTOLINK] - ChartSchool - StockCharts.com

Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.

Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance.

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  #12 (permalink)
JamesPowell
conyers ga usa
 
Posts: 17 since Nov 2016
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I believe I can illustrate exactly why previous support becomes resistance and vice versa.

I tried to post a chart but I'm new and need 4 more posts. Ill be back with 4 more posts then a chart...sorry

if you will please look at the chart link above. It is an inverse example but the principle works both ways. In the picture is a blue line at a nearby pivot high. Clearly a resistance level. All pivots are simply reactions to what traders commonly refer to as supply or demand. In the case of the pivot high in this picture it is a reaction to supply. Supply being sell orders. To the right of that price point we have a bar that crosses the line deeper into said supply. That same bar, because of said supply promptly pulls back into demand. From that demand the very next few bars show price move even deeper into said supply. Then the next few bars have price returning to the previously mentioned demand.

if we look at the "cross over" in the circled area what we have to the left of the cross over is a supply level. The level of supply becomes used up by a larger amount of buy orders. It becomes simple math. The buy orders at that level, at that line, at that resistance level, outnumber the sell orders. Price moves up because now, at the time of the cross over, there is an abundance of buy orders and zero sell orders now.

So now when price revisits this price level a little farther over we see what was once resistance has now become support. It is purely a matter of a supply and demand imbalance.

thanks for reading my post

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  #13 (permalink)
JamesPowell
conyers ga usa
 
Posts: 17 since Nov 2016
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all pivots are support and resistance levels

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  #14 (permalink)
JamesPowell
conyers ga usa
 
Posts: 17 since Nov 2016
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every individual candle and bar itself illustrates support and resistance

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  #15 (permalink)
JamesPowell
conyers ga usa
 
Posts: 17 since Nov 2016
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pivots, both highs and lows, are reactions to supply and demand and become pivots because of the supply or demand imbalance.

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  #16 (permalink)
JamesPowell
conyers ga usa
 
Posts: 17 since Nov 2016
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hopefully my next post I can post the chart that went with my first post.

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  #17 (permalink)
JamesPowell
conyers ga usa
 
Posts: 17 since Nov 2016
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JamesPowell View Post
I believe I can illustrate exactly why previous support becomes resistance and vice versa.

https://www.tradingview.com/x/n8OChU7O/

if you will please look at the chart link above. It is an inverse example but the principle works both ways. In the picture is a blue line at a nearby pivot high. Clearly a resistance level. All pivots are simply reactions to what traders commonly refer to as supply or demand. In the case of the pivot high in this picture it is a reaction to supply. Supply being sell orders. To the right of that price point we have a bar that crosses the line deeper into said supply. That same bar, because of said supply promptly pulls back into demand. From that demand the very next few bars show price move even deeper into said supply. Then the next few bars have price returning to the previously mentioned demand.

if we look at the "cross over" in the circled area what we have to the left of the cross over is a supply level. The level of supply becomes used up by a larger amount of buy orders. It becomes simple math. The buy orders at that level, at that line, at that resistance level, outnumber the sell orders. Price moves up because now, at the time of the cross over, there is an abundance of buy orders and zero sell orders now.

So now when price revisits this price level a little farther over we see what was once resistance has now become support. It is purely a matter of a supply and demand imbalance.

sorry for the small posts above

thanks for reading my post

I had to make all the little ones to re post this one with the link to the chart

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  #18 (permalink)
JamesPowell
conyers ga usa
 
Posts: 17 since Nov 2016
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I hope I said that right

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  #19 (permalink)
JamesPowell
conyers ga usa
 
Posts: 17 since Nov 2016
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https://www.tradingview.com/x/ihNRh4mn/

here is a follow up from last nights posts showing a second visit to the same support ( aka demand) area that was previously resistance (aka supply).

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Last Updated on November 14, 2016


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