[Support could become resistance, why?] There are two reasons | The Real Rayner Teo

[Support could become resistance, why?]

There are two reasons for this…

Reason #1: Losing traders hoping to get out at breakeven

Support is an area where potential buying pressure could step in and push the price higher.

However, support doesn’t always hold.

When it breaks, those traders who are long will be sitting in the red. The smart traders will cut their losses and move on. But, stubborn traders will hold onto to their losses and hope the price will reverse back to their entry price — so they can get out at breakeven.

So if you think about it, this group of stubborn traders will create selling pressure at their entry price as they exit their positions, and if there’s enough of such traders, support will become resistance.

But that’s not all because…

Reason #2: Textbook setup

Traders familiar with classical technical analysis will look to sell at the previous area of support as that’s what most textbooks teach.

And if you get enough traders “following” the textbook setup, it puts selling pressure on the previous area of support which could now become resistance.