UNDERSTANDING SUPPORT AND RESISTANCE AS A BEGINNER (Part 3)
Lets continue from How traders can use support and resistance levels
Entering a trade near a level of support or resistance area may be a beneficial strategy.
Mainly because of the relatively close invalidation point – where we usually place a stop-loss order.
If the area is breached and the trade is invalidated, traders can cut their loss and exit with a small loss. In this sense, the further the entry is from the zone of supply or demand, the further the invalidation point is.
Something else to consider is how these levels may react to changing context.
As a general rule, a broken area of support may turn into an area of resistance when broken. Conversely, if an area of resistance is broken, it may turn into a support level later, when it’s retested. These patterns are sometimes called a support-resistance flip.
The image in this post shows the area of support breaks and turns into resistance when retested.
The fact that the previous support zone acts as resistance now (or vice versa) confirms the pattern. As such, the retest of the area may be a favorable place to enter a position.
Another thing to consider is the strength of a support or resistance area. Typically, the more times the price drops and retests a support area, the more likely it is to break to the downside.
Similarly, the more times the price increases and retests a resistance area, the more likely it is to break to the upside.
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