InvestorQ : Is it possible that supports become resistance at some point or that resistance levels become supports of a stock price?
Maniish Lofar made post

Is it possible that supports become resistance at some point or that resistance levels become supports of a stock price?

Answer
user profile image
1 year ago


These events are called breakouts and are very important for a trader as they show the conviction or reversal in a trade. You must have intuitively noticed in the past that when a stock breaks above a key resistance level, then the uptrend from that point becomes very sharp and rapid. Similarly, you must have also noticed that when a stock or an index breaks below a support level, then the fall in price becomes really pronounced from that level. This is very true of stocks that go into prolonged bear markets. A key concept of technical analysis is that when a resistance or support level is broken, its role is reversed. If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support. As the price moves past a level of support or resistance, it is thought that supply and demand has shifted, causing the breached level to reverse its role. Typically when the supports or resistances are reversed, then the trader will typically exercise stop losses and close the position as the underlying trend has now shifted decisively. Then they take a fresh view on taking a converse position in the markets.

However, there is one caveat to keep in mind here. Technical analysis is one approach of attempting to determine the future price of a security or market. Some investors may use fundamental analysis and technical analysis together; they’ll use fundamental analysis to determine what to buy and technical analysis to determine when to buy. Irrespective of whether you are an investor or trader, supports and resistances are key metrics for you.

Don’t forget that technical analysis is not an exact science and it is subject to interpretation. If you continue your study of technical analysis you’ll likely hear someone say it is more of an art than a science. As with any discipline of analysis it takes work, dedication, and discipline to become adept at it, just like anything that’s worthwhile.