How to Identify Support and Resistance in Markets with AnologyHello Friends,
Welcome to RK_Chaarts,
Today we are going to learn & understand real work of Supports and Resistances in markets,
and Market structure with very good examples (Educational Post)
The Market's Architecture: Support and Resistance
This is an excellent analogy for understanding two of the most worthful concepts in technical analysis: support and resistance. By thinking of the market as a multi-story building, we can visualize how price moves and what happens when it hits certain levels.
- The Core Analogy: The Building and the Elevator
- Imagine the market as a large building with many floors. The price of an asset (like a stock or a cryptocurrency) is like an elevator moving up and down within this structure. The floors and ceilings of the building are not physical barriers but represent specific price points that the market has collectively agreed upon as important.
- The Floor (Support)
The floor of a building provides a solid base and prevents the elevator from falling further. In the market, this is called a support level. A support level is a price point where buying pressure is strong enough to stop the price from declining. When the "elevator" (price) reaches the floor, it finds enough buyers to give it a lift, preventing a deeper fall. A strong support level is like a thick concrete floor—it has been tested multiple times and holds firm, showing that there is significant demand for the asset at that price.
- The Ceiling (Resistance)
- The ceiling of a building sets the upper limit for the elevator's movement on a given floor. This is the market's resistance level. A resistance level is a price point where selling pressure is strong enough to prevent the price from rising further. When the "elevator" hits the ceiling, it encounters a large number of sellers who are ready to take profits, pushing the price back down. A strong resistance level is like a low ceiling—the price hits it and retreats, indicating that many investors believe the asset is overvalued at that point.
Breaking Through: New Levels
The most dynamic part of the analogy is what happens when the elevator breaks through a floor or ceiling.
Breakout (Breaking the Ceiling):
When the price has enough momentum to push through the resistance level (the ceiling), it has essentially moved to a new, higher floor. This is a significant event. The old ceiling, which was previously a barrier, now becomes the new floor. This is a key trading principle: old resistance often becomes new support. The market has established a new, higher trading range, and if the price falls back to that level, it will likely find buyers there, who now see it as a good value.
Breakdown (Breaking the Floor):
Once if price falls from that floor (Support level) which is called as Breakdown in technical language, then lower floor can be the next stop for elevator (Next Support for price), The old floor, which once provided support, now becomes a new ceiling. This is the reverse principle: old support often becomes new resistance. If the price tries to rally back up, it will likely get stuck at this old support level, as it's now seen as a good place to sell.
Structural Integrity (Volume)
Think of market Volume like a construction team. When a lot of people are involved (high volume), the structure is stronger.
Imagine a ceiling in the market. If lots of buyers (high volume) break through it, that's like a robust construction team building a new floor. It's unlikely to collapse.
On the other hand, if sellers break through a floor with high volume, that's a strong sign they're serious about the downward move.
But if the volume is low, it's like a weak construction team. Even if they break through, the move might not last. It's like a flimsy wall that could easily be reversed.
So, volume gives us a sense of whether the market's moves are strong and reliable, or weak and likely to change.
I am not Sebi registered analyst.
My studies are for educational purpose only.
Please Consult your financial advisor before trading or investing.
I am not responsible for any kinds of your profits and your losses.
Most investors treat trading as a hobby because they have a full-time job doing something else.
However, If you treat trading like a business, it will pay you like a business.
If you treat like a hobby, hobbies don't pay, they cost you...!
Hope this post is helpful to community
Thanks
RK💕
Disclaimer and Risk Warning.
The analysis and discussion provided on in.tradingview.com is intended for educational purposes only and should not be relied upon for trading decisions. RK_Chaarts is not an investment adviser and the information provided here should not be taken as professional investment advice. Before buying or selling any investments, securities, or precious metals, it is recommended that you conduct your own due diligence. RK_Chaarts does not share in your profits and will not take responsibility for any losses you may incur. So Please Consult your financial advisor before trading or investing.
