A Technical Pattern You Definitely Want to Know How to Recognize

Technical analysis is where one tries to anticipate a future price move on a security based on its past behavior. There are a great many technical indicators and oscillators such as price movements, volume, and chart patterns.

In reference to price movements and chart patterns I will educate you all on one I see happen quite often. It’s technically two patterns, but they are the inverse of each other.

• Old Support Becomes New Resistance (OS/NR)
• Old Resistance Becomes New Support (OR/NS)

Old Support, New Resistance

This is where a price level that previously acted as support— a price where buyers consistently stepped in and bought, gets broken and then when prices comes back to that old (prior) support price area it often turns into new resistance.

Why? Traders who bought at that support level and saw the price fall, breaking support, could see it as a way to get out and at least break even. That selling pressure creates resistance.

It’s as if there is a psychological shift in people’s minds. Buyers become sellers at the same level. 

It’s as if they are now more cautious at this price point vs. confident as they were originally.

Old Resistance, New Suppor

This is the opposite of OS/NR, but it works just as well.

This is where a price level that previously acted as resistance eventually becomes a new support area/price. I often see it happen when a security breaks out to the upside. That resistance gets broken and eventually the security comes back to that price and gets bought again and holds that price.

Why?

Breakout buyers: Traders who missed the initial breakout often wait for a pullback to that resistance level to enter, and that tends to create buying pressure.

Again, a possible psychological shift is happening here as well. People may feel like it held this price before it could do so again.

This phenomenon is frequently observed in the charts. It’s one of those self-fulfilling prophecies in trading. Likely, because so many traders watch these levels. And investor and traders behavior reinforces this pattern, (these patterns).

Here is a Year-to-Date (YTD) chart on SPY showing the patterns playing out beautifully; (My opinion).

Patterns & Profits

I teach options education, I run multiple videos each week, where I give my overall market view, my sector specific insights and discuss potential stocks and ETF’s and crypto currencies.

I then break down for everyone where I see the security (stock , ETF or crypto) going in price and by when and if you want to learn from me a great place to start is my site Patterns and Profits.

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