From this article, you will discover how to tell when support and resistance will break. So you don’t get caught on the wrong side of the move here is the thing: imagine, if you know that the support is about to give way about the breakdown what you will do is that you will stop buying into support.
Traders who are not informed will buy support and then get caught on the wrong side of the move and then get stopped out of their trade. If you are good at this you can even take one a step further. If you know that support is going to break, you can even sell the breakdown and profit from it while other traders get stopped out.
Sign of strength of support and resistance lines
The first thing to look for is a sign of strength that tells you that resistance is about to break and you don’t want to be selling resistance. So resistance is an area where potential selling pressure could come in and show the market resistance.
Let’s say, a series of higher lows into it like this, some of you might say that this is an ascending triangle and you are exactly right. Why is this significant? When you notice a series of higher lows into resistance this tells you that the buyers are willing to buy at these higher prices. This results right in a series of higher lows.
Why are these buyers willing to buy at these higher prices? The only reason that they are bullish. They expect the price to break out. Whenever you see a series of higher lows into resistance this is a sign that this market is likely to break out higher.
Resistance a sign of weakness
Not always, but more often than not, it tends to break out higher, and likewise on the opposite end of the spectrum is what we call a sign of weakness. This is when you notice a series of lower highs into support. This tells you that this market is likely to break down lower. You can see that the sellers are willing to sell at lower prices. If you look at the buying pressure from the buyers you will notice it is getting weaker and weaker.
The subsequent rarely gets weaker and weaker, so this is why you notice that the move from the buyers, the initial up move is pretty much subsequent. Moves get you to know lesser and lesser, they can not push the market any higher, they can not even retest the previous swing high. He only managed to know this much. There are a few examples, so you know what to look for first thing first.
This is a chart of uh Bitcoin. Over here we have this sign of strength. A series of higher lows coming into resistance this is a sign of strength telling you the buyers are willing to buy at these higher prices. In this case uh obviously a cherry-picked chart, this market did break out higher.
The next a currency market dollar against the Chinese u.n. The same concept is the area of resistance, a series of higher lows coming into it a sign of strength which led to this market to break out retest and then followed by the breakout higher.
Higher timeframe trend
The other thing you should know to pay attention to is the higher time frame trend. Many traders just kind of missed this one out. Sometimes, when you spot, let’s say, support and resistance on your chart and you don’t have the sign of strength, sign of weakness, price action that you have seen earlier, there is no series of higher highs and higher low. How do you know which direction the price will break up? So this is where you should pay attention to the higher time frame trend. Because it will give you clues to where the market is likely to break out.
Look at this chart. This is AMD. We are going to zoom it. Do you think the market is going to break out higher or going to break out lower? We do not know. We would only make an assumption if we can see where the market is in the grand scheme of things in a big picture. What you can do is either zoom out your charts or go up to a higher time frame like the weekly time frame.
So we are just going to zoom out charts and see where we are in the grand scheme of things. As you can see over here this market is in an uptrend long term upfront.
We can say this market is likely to break out of resistance because the market is still in an uptrend. Just look at what the overall market is doing. You can even go up to the weekly timeframe.
What is Pullback Trading? Read here.
Finally, about Support and Resistance
From this article, you should take the concepts and watch the markets using what you have just learned and see whether it is true or not. Because if you know, for example, the support is likely to break down because you notice a series of lower highs into support then you stop buying into support, and that would reduce unnecessary losses and will improve your overall bottom line.