Understanding Support & ResistanceFebruary 4th, 2021
Support & resistance are commonly referenced with regard to markets – price levels which could potentially “support” a declining market or “resist” a rising one.
One approach to support & resistance is that there are three possibilities when price reaches a support or resistance level. Using a resistance area in his example, Gary of ShrewdTrading discusses three potential outcomes when price reaches resistance:
- Failure – When price reaches resistance it immediately reverses and comes back down.
- Rotation – Price trades sideways near the resistance area.
- Acceptance – Price breaks right through the resistance level and continues upward. This is also known as a breakout.
According to Gary, price hitting resistance alone is not a reason to exit a long position or initiate a short position. There are other components needed to strengthen a trade the thesis that resistance will bring the price down, and if price accepts resistance or rotates around it, the market could continue to rise.
Learn more in this 1-minute video excerpt:
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