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When it comes to support and resistance, the market can react in many ways…

As you go through technical analysis training, here are some patterns that we can often observe when this shows up in the market.

One that may be called touch and away as if the market is trying to reach on for some level of support and resistance, and when it gets close , it reverses suddenly and retreats , as if there was a build-up of pressure that is suddenly released . This is known as an exhaust. This is a formation where there is holding of the resistance level. It’s a pattern that looks like it’s trying to get on through, by “chewing” or “worrying” the support or resistance level like a dog knawing on a bone , but it fails , and does not break through , and the market suddenly turns and moves in the opposite direction .

The second major way that support/resistance gives way is when the prices pop up through the level of resistance that is anticipated and go up even higher . The gap, known as a “pop” can be startling and sudden and can be surprising to traders. In these days of 24-hour markets and electronic trading platforms there are fewer gaps like this that occur because there is continous overnight trade and there is not a long time without trading . Still we do see gaps occur , and we need to know how to trade them . One thing to remember as you take technical analysis training is that once broken , resistance becomes support and support becomes resistance . Usually the previous support and resistance will be tested by the new prie level and then continue on its way in the direction of the pop .

Another breakdown of support and resistance that occurs is that prices simply slice through the anticipated barrier like a knife through a bowl of jelly , just like no support or resistance existed….and that is exactly what is happening . Price cuts through fast . We see this most often when we anticipate support or resistance on one time frame but on a higher time frame there is nothing that backs it up . One example is that if the daily shows resistance but to that point the weekly chart shows nothing – we should be on alert .

This is a really important point in your technical analysis training – when the phenomena you think is there is not there in reality . It is a situation where the lower time period technical analysis shows support , but in the real world it doesn’t exist , or if it does exist in the real world it is weak and there is no real market effect . The astute multiple-time-period-trader will be alert to this situation because setting up in the area there won’t be higher time period tools . The good news is that it quickly can be seen and we will be able to determine very soon that this is a negative pattern and there is not any resistance or support occuring in the area.

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