Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

AgeKay

Why Does Support Turn into Resistance and Vice Versa?

Recommended Posts

I see this way too often to deny its significance. Support becomes Resistance and Resistance turns into Support, especially after day's high/low breakouts. It's so accurate (to the tick) that it's scary. I am wondering why that is happening.

 

Two reasons that came to my mind were the following, but both aren't terribly convincing:

 

a) traders that went long at the support try to get out break-even or with a small loss, that's why they keep selling at the previous support, effectively making it resistance.

b) traders know that other traders went long at the support and want to prevent them from profiting so they sell at that price, knowing that long traders have to sell eventually.

 

I hope one of you has a better explanation.

Share this post


Link to post
Share on other sites

Both is true in my experience. a) is a common technical explanation that derives from the traders' psychology caught on the wrong foot whereas b) is a self-fulfilling prophecy other traders use to get into the market.

The whole phenomenon is akin to value area trading where you look at historical bid/ask volumes and take em as S/R.

Share this post


Link to post
Share on other sites

The reason it can be accurate to the tick is that people know its likely to be accurate to the tick in that market. I trade in markets like that but also in markets that never reach it in a strong move and markets that usually break it by 5-10.

 

So, the basics are:

- people who wanted to get short wait as long as possible and the big guys scale in as price is retracing back to the break point

- people who are long and big scale out as price pulls back to the break point

- if the market is very strong or has typical behaviour then the observant money knows its not likely to get further than xxxx so thats as far as they wait

- when it starts to move away from that point and down again, even a few ticks perhaps, those who, hopefully, waited to see if it might break through this time give up and jump on it.

 

Crowd behaviour in a repeating scenario.

Share this post


Link to post
Share on other sites

Take away the indicators, the moving averages, and the colored bars. In fact, take away the bars and the entire idea of a graphical representation and what are you left with? A price. A value placed upon some underlying object (or paper, or contract), determined by who will or will not pay a particular amount for it. That is it. Nothing more or less. Adding to that, sometimes humans like to keep things simple, especially with numbers (i.e. rounding to the nearest whatever, treasury notes-- $1, $5, $10, $20, $100, etc.). With that in mind, would it not be understandable that if a price provided resistance, that it would also provide support?

 

Let me provide just one example (certainly not applicable to every situation by any means). One man eyes up stock XYZ for months and notes each day what happened with its value. He notices over a number of weeks that the price of the object ranged from 11.50 to 13.50. It never seemed to get lower than 11.50 or higher than 13.50. Out of no where, he wakes up to find that the price had broken above 13.50 to 13.72. Obviously from what he's witnessed over the past few weeks, he knows that this price is "expensive" for the stock, so he waits. Eventually price gets back to 13.51 and he decides its the right time to purchase some shares. Why? Well, the stock is obviously worth more now, otherwise it would not have broken above 13.50. Why 13.50? It was so important for weeks to the sellers, so why wouldn't it have significance now for someone buying? In addition to that, most of us here know that what I just described was a perfect breakout and retracement trade. Many people don't like taking breakouts because of the numerous amounts of fake-outs, so they wait for price to get back to the area in which is broke. If enough people do this, it will be obvious on the chart, hence your R becoming S.

 

But, keep in mind, there are millions of people with more than one reason to buy or sell at a certain price. My only true explanation of why S becomes R is because S/R end up being "markers" for people who are buying and selling. "I'll sell everything if we get to 20 and buy more if it comes back to 10"

 

Below is a chart of GLD with a few levels, in which almost every one acts as both S and R. Price moves in waves that are part of bigger waves. Overall the trend is up, but the waves keep flowing from range to range (keeping to numbers that make sense... numbers that are familiar from hours ago or days ago). Then the quicker buyers (and sellers) decide to exit the range (that GLD is worth more), the stronger (steeper) the trend line gets, flowing from S to R and back again. Maybe what we'll see is that price will find R really soon and retrace back to just above 112. At that point, buyers may "remember" the level and start loading up on shares from the satisfied sellers (or excited short-sellers) that have been dumping their shares on people since the high.

 

randomv.jpg

 

I hope this helps to paint the picture of what is happening and how interesting it is. We're graphing human emotion playing out in a series of buy and sell orders at specific price markers that seem to repeat themselves for psychological reasons.

 

EDIT: Also, I highly recommend reading DbPhoenix's write-up on this topic.

Edited by wjrusnak

Share this post


Link to post
Share on other sites

Why Does Support Turn into Resistance and Vice Versa ?

 

 

That's a good question... here are some more ideas:

 

One reason why price may break support and not come back to it..... If you had enough money to move the market, where is a good place to go short in a big way...... well one place is at support, where Joe Public is exiting his short (with a long) and Joe Smarty is entering a new long because.... it's support you know, so there are plenty of people to take the other side of your large short.

 

One reason why price breaks support, travels a ways down, returns back up to old support before going down again is ..... Joe Public sees the tide has turned and an obvious short, and someone wanted to take the other side of all those shorts ..... either to exit a previous short, or to enter a new long.

 

.

Share this post


Link to post
Share on other sites

Thanks for all the responses so far, I really like some of the explanations. Just so you know, I trade very short-term, I don't even look at yesterday's chart, so if you talk about days and weeks, I can't really relate to that. The "markers" explanation by wjrusnak is one of the best explanations though, in my opinion.

Share this post


Link to post
Share on other sites

An interesting question. Another way of viewing things is from a more market microstructure type view. Markets exist to facilitate trade. They are systems to match sellers with buyers. The behaviour of markets in general and price in particular can be viewed as a search for liquidity. The reason that these areas are visited and re visited is that they are areas where liquidity (orders) might be found.

Share this post


Link to post
Share on other sites

In my opinion, which is not going to be very popular here, support and resistance are convenient ways to describe price movements by traders who need the comfort of an explanation for the logic behind their decisions to buy or sell.

 

Not much different than stereotyping the behavior of certain classes or races of people when they engage in certain behaviors.

Share this post


Link to post
Share on other sites
In my opinion, which is not going to be very popular here, support and resistance are convenient ways to describe price movements by traders who need the comfort of an explanation for the logic behind their decisions to buy or sell.

 

Not much different than stereotyping the behavior of certain classes or races of people when they engage in certain behaviors.

 

 

LOL. Why should you be popular. And why shouldn't I annoy you a little:

 

Stereotyping gets a bad rap. Its actually the application of applied statistics and probability. So when we see an overly aggressive fast driver we say "probably a young male" and that is applied statistics ... and "probably" right.

 

The error in stereotyping is when its used lazily or ignorantly with the assumption that "young male = fast aggressive driver."

 

The same applies to S&R. Probabilities based on observed statistics are key - but errors in pattern matching and the stereotyping error above can create problems.

Share this post


Link to post
Share on other sites
In my opinion, which is not going to be very popular here, support and resistance are convenient ways to describe price movements by traders who need the comfort of an explanation for the logic behind their decisions to buy or sell.

 

Not much different than stereotyping the behavior of certain classes or races of people when they engage in certain behaviors.

 

I didn't realize that the OP asked for a definition and whether you believed in support and resistance. I thought he asked why support became resistance and vice versa. ;)

Share this post


Link to post
Share on other sites

Yes, but Zoso's point "do you believe in the thing at all" is an interesting one.

 

One of my favourite Wizard's Eckhardt, suggested that many traders made a mistake in paying too much attention to S&R (correct me if I'm wrong please).

Share this post


Link to post
Share on other sites
Yes, but Zoso's point "do you believe in the thing at all" is an interesting one.

 

One of my favourite Wizard's Eckhardt, suggested that many traders made a mistake in paying too much attention to S&R (correct me if I'm wrong please).

 

Ironically, if too many traders pay attention to S/R, you'll see it on a chart.

Share this post


Link to post
Share on other sites
I didn't realize that the OP asked for a definition and whether you believed in support and resistance. I thought he asked why support became resistance and vice versa. ;)

It happens because he and others believe it to be so. I know it sounds circular, and it is.

 

Like faith based religions, that belief is the basis for many to explain why they trade at those alleged levels. The theory (faith) justifies the action.

Share this post


Link to post
Share on other sites
It happens because he and others believe it to be so. I know it sounds circular, and it is.

 

Like faith based religions, that belief is the basis for many to explain why they trade at those alleged levels. The theory (faith) justifies the action.

 

 

you sound like you believed what you said...

Share this post


Link to post
Share on other sites
Like faith based religions, that belief is the basis for many to explain why they trade at those alleged levels. The theory (faith) justifies the action.

 

Really? You're going to compare the observation of support and resistance to religion? You can take someone who never traded, tell them to draw a line across a chart, and even they could come up with "hey... it seems like the zig zags occur frequently at that line." In the early days, traders knew nothing but price. You could hear guys phoning into the floor, "give me another 1000 if it hits 82." Eventually it could hit 82, he'll buy up 1000 shares, other guys will notice it in the tick and follow suit. Then you'll get your 82 support. My point is that this all occurred before a graphical representation, thus for you to say that it is some sort of mystical belief is just ridiculous.

 

Oh... and I don't have issues with indicators... I just don't use them. (Referring to your PA Cult remark)

Share this post


Link to post
Share on other sites
Really? You're going to compare the observation of support and resistance to religion? You can take someone who never traded, tell them to draw a line across a chart, and even they could come up with "hey... it seems like the zig zags occur frequently at that line." In the early days, traders knew nothing but price. You could hear guys phoning into the floor, "give me another 1000 if it hits 82." Eventually it could hit 82, he'll buy up 1000 shares, other guys will notice it in the tick and follow suit. Then you'll get your 82 support. My point is that this all occurred before a graphical representation, thus for you to say that it is some sort of mystical belief is just ridiculous.

 

Oh... and I don't have issues with indicators... I just don't use them. (Referring to your PA Cult remark)

Now, now, I never said it was a mystical belief. Perhaps I should qualify and say ORGANIZED religion.

 

But we are not talking about the good ole days of guys hollering on the phone here. We are talking about electronic trading where the chart is KING OF THE ROAD and the vehicle for the decisions traders make.

 

Both the indicator and PA guys both suffer from the same groupthink.

Share this post


Link to post
Share on other sites
Now, now, I never said it was a mystical belief. Perhaps I should qualify and say ORGANIZED religion.

 

But we are not talking about the good ole days of guys hollering on the phone here. We are talking about electronic trading where the chart is KING OF THE ROAD and the vehicle for the decisions traders make.

 

Both the indicator and PA guys both suffer from the same groupthink.

 

Alright... now I'm not even sure that you know where you're going with this. S/R exists. I can prove that with a chart. People can trade it (I'm fairly certain some that people who post on P&L and Trading in Real Time prove that). There is no S/R Group (organized) on this thread. If you had found the S/R Trading in foresight thread before, you'd have noticed that some of us even had different levels. Maybe I'll simply ask... what was your point in even posting your "S/R might not be that real..." comment on this thread?

Share this post


Link to post
Share on other sites
In my opinion, which is not going to be very popular here, support and resistance are convenient ways to describe price movements by traders who need the comfort of an explanation for the logic behind their decisions to buy or sell.

 

Not much different than stereotyping the behavior of certain classes or races of people when they engage in certain behaviors.

 

Can't you say that for any methodology you use, that it is just to give you the comfort to provide a reason about why you take a trade? Whatever methodology you use and think to be correct, I am sure that someone will be able to provide different reasons than you did to take any of your trades.

Share this post


Link to post
Share on other sites

Alright girls, can you please stop arguing about stupid shit and focus on the topic of the thread. It started out so well, but the signal-to-noise ratio went down significantly with the past posts.

Share this post


Link to post
Share on other sites
Alright girls, can you please stop arguing about stupid shit and focus on the topic of the thread. It started out so well, but the signal-to-noise ratio went down significantly with the past posts.

Are you a misogynist?

Share this post


Link to post
Share on other sites

Below is a chart of GLD with a few levels, in which almost every one acts as both S and R. Price moves in waves that are part of bigger waves. Overall the trend is up, but the waves keep flowing from range to range (keeping to numbers that make sense... numbers that are familiar from hours ago or days ago). Then the quicker buyers (and sellers) decide to exit the range (that GLD is worth more), the stronger (steeper) the trend line gets, flowing from S to R and back again. Maybe what we'll see is that price will find R really soon and retrace back to just above 112. At that point, buyers may "remember" the level and start loading up on shares from the satisfied sellers (or excited short-sellers) that have been dumping their shares on people since the high.

 

randomv.jpg

 

Not to blow my own horn or anything.... but:

 

randomec.jpg

 

GLD found support and the previous resistance spot (which I marked on a chart last week). Why did it happen? Read what I had to say in post #4.

 

S/R is real... trade-able... and somewhat predictable. Hope that helps.

 

PS. Don't mind the RSI... I forgot to remove it on stockcharts.com :)

Share this post


Link to post
Share on other sites

PS. Don't mind the RSI... I forgot to remove it on stockcharts.com :)

 

Looks like the RSI finally broke through resistance at 70. Maybe it will become support soon. :)

 

FWIW the mindset I keep is the "search for liquidity" one that Blowfish mentioned. I tend to see price as drifting in the direction of least resistance. This means it bounces off areas where lots of orders are. If someone happens to push it to the other side of a highly liquid zone, then it will start bouncing off if it from the other side if people continue placing orders there. Support becomes resistance.

 

As with all theories like this, I have no way to verify it one way or the other... I just go with what makes the most sense to me with the information I have. In my view, the most important thing is to have a theory in mind that allows you to make confident (and statistically profitable) moves in the market. No time for second-guessing when a trade needs to be put on!

Edited by RichardTodd
spelling error

Share this post


Link to post
Share on other sites

when the market breaks out above resistance price will either continue up without testing the breakout area or price will pullback and test the breakout(previous resistance level).if the market pulls back to the previous resistance level it will then test to see what the strength of the buyers are at this level.if it holds and bounces and continues up then you can assume that institutions were defending their positions.if it doesn't hold but instead continues down then the breakout failed because of lack of institutional support.S/R is just one part of reading the market with price action.context is very important.is the market in a trading range or trend? if in a trend, is it a trading range trend or a strong trend with little overlap? how many times has the market tested this resistance level? hth

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • Agreed since some of the new traders usually lose money in start and some loses more while chasing their lost money and eventually ends up blaming to their brokers part.
    • The crypto market are also in phase of maturing like the forex and other trading assets so we can do much more accurate analysis than before since early days it was purely a luck if the investments in crypto bears results because most of the coins or tokens never come to fruition. Some early birds were also able to make profits on these tokens or coins. e,g., like turtle coin starts with 1 satoshi and go up to 7 sathoshis, quite good rewards. another token lmgx now hovering at 10 started from 1, 
    • How's about other crypto exchanges? Are all they banned in your country or only Binance?
    • Be careful who you blame.   I can tell you one thing for sure.   Effective traders don’t blame others when things start to go wrong.   You can hang onto your tendency to play the victim, or the martyr… but if you want to achieve in trading, you have to be prepared to take responsibility.   People assign reasons to outcomes, whether based on internal or external factors.   When traders face losses, it's common for them to blame bad luck, poor advice, or other external factors, rather than reflecting on their own personal attributes like arrogance, fear, or greed.   This is a challenging lesson to grasp in your trading journey, but one that holds immense value.   This is called attribution theory. Taking responsibility for your actions is the key to improving your trading skills. Pause and ask yourself - What role did I play in my financial decisions?   After all, you were the one who listened to that source, and decided to act on that trade based on the rumour. Attributing results solely to external circumstances is what is known as having an ‘external locus of control’.   It's a concept coined by psychologist Julian Rotter in 1954. A trader with an external locus of control might say, "I made a profit because the markets are currently favourable."   Instead, strive to develop an "internal locus of control" and take ownership of your actions.   Assume that all trading results are within your realm of responsibility and actively seek ways to improve your own behaviour.   This is the fastest route to enhancing your trading abilities. A trader with an internal locus of control might proudly state, "My equity curve is rising because I am a disciplined trader who faithfully follows my trading plan." Author: Louise Bedford Source: https://www.tradinggame.com.au/
    • SELF IMPROVEMENT.   The whole self-help industry began when Dale Carnegie published How to Win Friends and Influence People in 1936. Then came other classics like Think And Grow Rich by Napoleon Hill, Awaken the Giant Within by Tony Robbins toward the end of the century.   Today, teaching people how to improve themselves is a business. A pure ruthless business where some people sell utter bullshit.   There are broke Instagrammers and YouTubers with literally no solid background teaching men how to be attractive to women, how to begin a start-up, how to become successful — most of these guys speaking nothing more than hollow motivational words and cliche stuff. They waste your time. Some of these people who present themselves as hugely successful also give talks and write books.   There are so many books on financial advice, self-improvement, love, etc and some people actually try to read them. They are a waste of time, mostly.   When you start reading a dozen books on finance you realize that they all say the same stuff.   You are not going to live forever in the learning phase. Don't procrastinate by reading bull-shit or the same good knowledge in 10 books. What we ought to do is choose wisely.   Yes. A good book can change your life, given you do what it asks you to do.   All the books I have named up to now are worthy of reading. Tim Ferriss, Simon Sinek, Robert Greene — these guys are worthy of reading. These guys teach what others don't. Their books are unique and actually, come from relevant and successful people.   When Richard Branson writes a book about entrepreneurship, go read it. Every line in that book is said by one of the greatest entrepreneurs of our time.   When a Chinese millionaire( he claims to be) Youtuber who releases a video titled “Why reading books keeps you broke” and a year later another one “My recommendation of books for grand success” you should be wise to tell him to jump from Victoria Falls.   These self-improvement gurus sell you delusions.   They say they have those little tricks that only they know that if you use, everything in your life will be perfect. Those little tricks. We are just “making of a to-do-list before sleeping” away from becoming the next Bill Gates.   There are no little tricks.   There is no success-mantra.   Self-improvement is a trap for 99% of the people. You can't do that unless you are very, very strong.   If you are looking for easy ways, you will only keep wasting your time forgetting that your time on this planet is limited, as alive humans that is.   Also, I feel that people who claim to read like a book a day or promote it are idiots. You retain nothing. When you do read a good book, you read slow, sometimes a whole paragraph, again and again, dwelling on it, trying to internalize its knowledge. You try to understand. You think. It takes time.   It's better to read a good book 10 times than 1000 stupid ones.   So be choosy. Read from the guys who actually know something, not some wannabe ‘influencers’.   Edit: Think And Grow Rich was written as a result of a project assigned to Napoleon Hill by Andrew Carnegie(the 2nd richest man in recent history). He was asked to study the most successful people on the planet and document which characteristics made them great. He did extensive work in studying hundreds of the most successful people of that time. The result was that little book.   Nowadays some people just study Instagram algorithms and think of themselves as a Dale Carnegie or Anthony Robbins. By Nupur Nishant, Quora Profits from free accurate cryptos signals: https://www.predictmag.com/    
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.