Support and resistance exist because of people memories. Our memories prompt us to buy and sell at certain levels
This was rightly said in the book 'Trading for a living ' by Dr. alexander
support and resistance exist because of masses of traders feel pain and regret. trader who hold losing position feel intense pain. losers
are determined to get out as soon as the market gives them the second chance. traders who missed an oppurtunity feel regret and also wait for the market to give them a second chance.Feeling of pain and regret are mild in trading ranges where swings are small and losers do not get hurt too badly. breakout from trading ranges create intense pain and regret
Example
When the market stays flat for a while , traders get used to buying at the lower edge of the range and shorting at the upper edge. In uptrends, bears who sold short feel pain and bulls feel regret that they did not buy more. Both feel determined to buy if the market gives them a second chance. the pain of bears and regrets of bulls make them ready to buy, creating support during reactions in an uptrend
Resistance- Vice versa
In my experiance, first test of support or resistance works most of the time.
This was rightly said in the book 'Trading for a living ' by Dr. alexander
support and resistance exist because of masses of traders feel pain and regret. trader who hold losing position feel intense pain. losers
are determined to get out as soon as the market gives them the second chance. traders who missed an oppurtunity feel regret and also wait for the market to give them a second chance.Feeling of pain and regret are mild in trading ranges where swings are small and losers do not get hurt too badly. breakout from trading ranges create intense pain and regret
Example
When the market stays flat for a while , traders get used to buying at the lower edge of the range and shorting at the upper edge. In uptrends, bears who sold short feel pain and bulls feel regret that they did not buy more. Both feel determined to buy if the market gives them a second chance. the pain of bears and regrets of bulls make them ready to buy, creating support during reactions in an uptrend
Resistance- Vice versa
In my experiance, first test of support or resistance works most of the time.