Reversal of duties

Often, the expectations of investors in the capital market change over time from a stock, and the support levels and price resistance levels will eventually be broken. The range, which was known as the resistance level for a long time, may be broken one day and the price will penetrate above it; On the contrary, the range, which was known as the support level for a long time, may also be broken and the price penetrates below it.

The important point is that when a resistance level is broken and the price stabilizes above it, then this level is accepted as a support level. When a support level is broken and the price stabilizes below it, then this level acts as a resistance level. This phenomenon is called task reversal. To get complete information, we suggest you read the technical analysis training article

In the above chart belonging to Shabandar symbol on the daily time frame, you can see that after the support level is broken and the price stabilizes below it (the formation of a bearish abc and the breaking of the upward short-term corrective trend line shown in blue color), the price retraces to this The level returned but could not break it.

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Because the level that before the failure played the role of support against the price movement and prevented the price from falling, from now on acts as a resistance level against the price movement and prevents its increase. The reason for this type of price behavior is that when the price initially approaches its support level, some investors think that the price will increase based on its past behavior and without waiting for stabilization, they buy and trade in the direction of the upward trend. ; But due to the selling pressure and the long-term downward trend, the price penetrated below the support level and forced some desperate buyers to exit the trade at a loss.

Exiting such deals will reduce the buying pressure. Also, after the support level is broken and the bearish ABC is formed, new sellers enter the market, which leads to a further price drop. After correcting the price and returning to the support level, some of the previous buyers, with the price returning to their previous purchase range, make the transaction at the break-even price (the price in which the purchase and sale commission is included, and from that point on, profit can be made. earned) or by incurring a slight loss, they close, which itself leads to a further decrease in the number of buyers.

◊  Also read this article: Free price action training from zero to one hundred

The behavior of most traders leads to a decrease in buying pressure and an increase in selling pressure; For this reason, the ranges of the price return to the support area (which from now on plays the role of resistance against the price movement), if confirmed, are considered very powerful ranges for the continuation of the downward trend. Therefore, after the candle closes below the short-term upward trend line, which indicates the stability of the price below the current resistance level, you can enter into a sell transaction.

In the above chart of the Midco symbol on the daily time frame, you can see that the price movement after breaking the resistance level and consolidating above it (forming an ascending abc and breaking the short-term downward correction trend line shown in blue color), again to this The level returned but failed to break it.

Because the previous resistance level from now on plays the role of the support level against the price movement and prevents the price from falling. As you can see, the level that before the failure played the role of resistance against the price movements and prevented the price growth, from now on it plays the role of the support level against the price movements and prevents its reduction.

The reason for this type of price behavior is that when the price initially approaches its resistance level, some traders think that the price will decrease, based on its past behavior and without patience and reflection to stabilize, they sell and trade in the direction of the downward trend; But as mentioned earlier, a resistance level will be broken one day and the price will penetrate above the resistance level due to buying pressure, forcing some desperate sellers to exit the trade at a loss.

◊  Also read this article: Free stock market training from zero to one hundred

Exiting such deals will reduce selling pressure. Also, after breaking the resistance level and forming an ascending abc, new buyers entered the market, which leads to a further increase in the power of buyers. After the price correction and return to the resistance level, some of the previous sellers will close the sale transaction (in bilateral markets) at the break-even price or at a slight loss by returning the price to their previous selling range, which will lead to a decrease The number of sellers will increase.

The behavior of most traders leads to a decrease in selling pressure and an increase in buying pressure; For this reason, the ranges of the price return to the resistance zone (which henceforth plays the role of support against the price movements), if confirmed, are considered very powerful ranges for the continuation of the upward trend. Therefore, after the candle closes above the short-term downtrend line, which indicates price stabilization above the current support level, a buy trade can be entered.

In the chart below belonging to the Semga symbol in the daily time frame, you can see that the price has been moving in a downward trend. At point A, we see the breaking of the resistance level due to the attractiveness of buying shares in that area. After the increase in the share price and due to the change in investors’ expectations, some traders sell the share due to the increase in the share price, and this leads to the return of the price to the previous resistance level.

This level, which in the past played the role of resistance against the price increase, after the failure and return of the price to it, prevents further price reduction and plays the role of a support level. As you can see, after the formation of an ascending abc and the breaking of the blue short-term downward trend line, the confirmation of the ascent is issued and you can enter into the purchase transaction.

In the chart below belonging to the car symbol in the monthly time frame, you can see that the price is in a downward trend and the resistance level on the indicated ranges has prevented the price from increasing. As mentioned earlier, a resistance level will not remain forever due to the change of investors’ expectations and will eventually be broken.

Although the price has returned to that level after breaking its resistance level at point A, it has not been able to break it. Therefore, the previous resistance level, which was broken at point A, will henceforth act as a support level against price movements and prevent the share price from falling further. If the price can break its blue short-term downward trend line and issue an upward confirmation, it is possible to buy shares within the specified range.

◊  Also read this article: Basic analysis training from zero to hundred

As you have seen so far, support and resistance areas act as barriers to price movements. Most of the time, these levels act as retracement levels in the market; After hitting these areas, the price changes direction in the opposite direction of the previous movement, but sometimes due to the strength of the trend, it may be able to break that level.

After the breakout, two situations may happen: the breakout is confirmed and the price continues to move along the previous trend, or the breakout is unsuccessful and returns above the support level or below the resistance level and leads to a trend reversal. In order to check the future direction of the trend, after specifying the support and authority levels, the price behavior can be checked.

Conclusion 

The expectations of investors in the capital market will change over time and the support levels and price resistance levels will be broken one day. If the range that was known as the resistance level for a long time is broken and the price penetrates above it, or the range that was known as the support level for a long time is broken and the price penetrates below it, we say that a reversal of duties has occurred. have given.