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RE: What does Support and Resistance really tell you?

in #trading7 years ago (edited)

Hiya, Luc!

What do we do when we've had a significant bounce, drawn the base...and then the price plummets anyway? I've attached my chart.

Am I misreading this? Was that bounce after base 3 not strong enough?


After some thought, I'm going to try to answer my own question. Maybe you can tell me if it's right.

The issue with price breaking below base 3 is that, yes, it did "crack"...but the DROP was not steep. Instead, it broke the base 3 support barrier a little and then kept bouncing around. This should have made me cautious that the price may continue to drop, as it in fact did. For me to be confident that I have a real crack, the drop should have been DRAMATIC, meaning the buyers will freak and struggle to restore it to its previous base.

Is that right?

But note I'm still unsure how to read the rightmost part, after base 5.

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It's a bit simpler than your own answer. Your base 3 wasn't a big crack in either % drop or angle/speed of drop. After that little shelf started turning down, that's when I would have started thinking the move down might hit that base 2, therefore using base 2 as my base and buying in below base 2 with a sell near that second shelf in that second circle you drew to the right of what you call your base 3.