Lesson: "Testing" Support or Resistance
Often times when a support or a resistance line (area) is broken, the price will return to "test" it. What is being "tested"? What is the significance of the "test"? Do we really know what this is all about, or do we just take it for granted that it happens and that it must mean something, but we really don't know what?
Here is the answer. For example, suppose support is broken and later the price retraces back up to that support area. What is really going on? The MMs are bears. They are looking to take price lower. But first, they want to obtain as many shorts as there is market liquidity to give them. The support area was an area where there were buyers previously. This area was broken to the downside, but that does not mean that buyers have not replenished orders there in case the price move down becomes just a head fake down. So, the MMs take price back up to that support area to "test" if new buyers exist there. If so, their buy orders can be triggered, giving the MMs the liquidity for more shorts.
Actually, the MMs can see any existing pending buy orders that come back on the price queue during the break low move down thru that support, and while manipulating the price back up to "test" it. What they cannot see are any long orders not yet placed. So, while they can see those that are, and bring the price back up to trigger them, when the MMs get the price back up to the support area they might hold it up there awhile to see if more long orders come in to the price queue to be executed. If the MMs hold the price up there - support the price - they might deceive traders into thinking the price is going higher, and get them to place long orders.
This is what "testing" support/resistance is all about. It is about the MMs looking for more liquidity to add to their positions before taking price further in the breakout direction.
Now, having said all of this, there is still something more, and very important, to remember. It is this. Whenever price is ranging, whether first time at SR, or later back testing the SR.......whenever price is ranging.......there can always be either of two eventual outcomes. The price can finish by going higher or lower. This we cannot ever know in advance. We must remember this. All market price movements can be logically explained after-the-fact. But while they are occurring there can be either of two outcomes, and we cannot know with absolute certainty which outcome it will be.
PVSRA and Patience,
tah
Often times when a support or a resistance line (area) is broken, the price will return to "test" it. What is being "tested"? What is the significance of the "test"? Do we really know what this is all about, or do we just take it for granted that it happens and that it must mean something, but we really don't know what?
Here is the answer. For example, suppose support is broken and later the price retraces back up to that support area. What is really going on? The MMs are bears. They are looking to take price lower. But first, they want to obtain as many shorts as there is market liquidity to give them. The support area was an area where there were buyers previously. This area was broken to the downside, but that does not mean that buyers have not replenished orders there in case the price move down becomes just a head fake down. So, the MMs take price back up to that support area to "test" if new buyers exist there. If so, their buy orders can be triggered, giving the MMs the liquidity for more shorts.
Actually, the MMs can see any existing pending buy orders that come back on the price queue during the break low move down thru that support, and while manipulating the price back up to "test" it. What they cannot see are any long orders not yet placed. So, while they can see those that are, and bring the price back up to trigger them, when the MMs get the price back up to the support area they might hold it up there awhile to see if more long orders come in to the price queue to be executed. If the MMs hold the price up there - support the price - they might deceive traders into thinking the price is going higher, and get them to place long orders.
This is what "testing" support/resistance is all about. It is about the MMs looking for more liquidity to add to their positions before taking price further in the breakout direction.
Now, having said all of this, there is still something more, and very important, to remember. It is this. Whenever price is ranging, whether first time at SR, or later back testing the SR.......whenever price is ranging.......there can always be either of two eventual outcomes. The price can finish by going higher or lower. This we cannot ever know in advance. We must remember this. All market price movements can be logically explained after-the-fact. But while they are occurring there can be either of two outcomes, and we cannot know with absolute certainty which outcome it will be.
PVSRA and Patience,
tah
{image} {quote} Nice with UJ, qFish. Mine still runing.. 
I'm jealous.
NO INVESTMENTS LEFT BEHIND!!!
