Prices tend to congregate around areas of resistance and support. It doesn’t matter what one buys or sells. Support and resistance apply to anything that has a pricing history, cars, houses, professional contracts, oranges, gold or wedding receptions. Everything.
Around support and resistance, while trading commodities, I’ve learned that there are also consistent market (i.e., human) behaviors, which lead to trade opportunities. The trade opportunities are:
- Long: resistance breakout
- Long: support reversal
- Short: support breakout (really, “breakdown”)
- Short: resistance reversal
One can offer you all sorts of “trade signals” in the world, yet they all boil down to these two scenarios. Now, some traders, especially chart pattern traders, see previous build up in the patterns ahead of the actual lines of resistance and support and enter “anticipatory” trade, in anticipation of one of those trades, especially breakouts. However, the point is the same and the anticipatory trade is a slippery slope that opens the door to all other trades.