Some say that the support and resistances are a self fulfilling prophecy. Self fulfilling prophecy is defined as follows:
“ If a greater proportion of the crowd say something is true, it will become the truth irrespective of the background information“.
If 90% of the traders believe that the support and resistances work, they will take the decisions depending on their beliefs and hence generate the net orderflow to drive the price in a particular direction.
No mater what the reason is, we know support and resistances work and we can use them to our advantage.
Just remember the following points,
Resistances are the roofs for the stock. They oppose the upward movement.
Supports are the floor for the stock. They oppose the downward moment.
Assume you are there in a room and trying to jump up. What is the maximum height that you can reach?? Of course the roof as it opposes the further movement to the upside. The same is true for the floor.
Now you must ask this question. Is there a possibility for the support and resistance to break. Of course there is. Lets get back to the above room example once again. But now, instead of you, assume the incredible hulk is jumping inside the room , There is no way that the normal roof can oppose his strength. The roof will be broken and he continues to move in the upside direction.
The same happens in the market. If the net orderflow that is trying to push the price of the stock higher is strong enough, the resistance will be broken. Similarly, if the net orderflow that is trying to push the price down is strong enough, the support will be broken. And the support or resistance once broken changes its polarities, ie. support becomes a resistance in future and the resistance becomes support in the future.
Now lets get back to the base concept where we have started all this. ie. Structure.
I restate that here again as a review and information consistency,
Price moves in a structural framework of Support and Resistance
1. If the framework is broken, it will enter into the new framework with a polarity shift in support/resistance.
2. Just understand what are supports and resistances for now. Don’t go deep into the construction of them as I have not explained it yet.
Summary:-
Resistances act as roofs for the price movement.
Supports act as floor for the price movement.
Support once broken turns into resistance for the future price movement.
Resistance once broken turns into support for the future price movement.
“ If a greater proportion of the crowd say something is true, it will become the truth irrespective of the background information“.
If 90% of the traders believe that the support and resistances work, they will take the decisions depending on their beliefs and hence generate the net orderflow to drive the price in a particular direction.
No mater what the reason is, we know support and resistances work and we can use them to our advantage.
Just remember the following points,
Resistances are the roofs for the stock. They oppose the upward movement.
Supports are the floor for the stock. They oppose the downward moment.
Assume you are there in a room and trying to jump up. What is the maximum height that you can reach?? Of course the roof as it opposes the further movement to the upside. The same is true for the floor.
Now you must ask this question. Is there a possibility for the support and resistance to break. Of course there is. Lets get back to the above room example once again. But now, instead of you, assume the incredible hulk is jumping inside the room , There is no way that the normal roof can oppose his strength. The roof will be broken and he continues to move in the upside direction.
The same happens in the market. If the net orderflow that is trying to push the price of the stock higher is strong enough, the resistance will be broken. Similarly, if the net orderflow that is trying to push the price down is strong enough, the support will be broken. And the support or resistance once broken changes its polarities, ie. support becomes a resistance in future and the resistance becomes support in the future.
Now lets get back to the base concept where we have started all this. ie. Structure.
I restate that here again as a review and information consistency,
Price moves in a structural framework of Support and Resistance
1. If the framework is broken, it will enter into the new framework with a polarity shift in support/resistance.
2. Just understand what are supports and resistances for now. Don’t go deep into the construction of them as I have not explained it yet.
Summary:-
Resistances act as roofs for the price movement.
Supports act as floor for the price movement.
Support once broken turns into resistance for the future price movement.
Resistance once broken turns into support for the future price movement.
