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View Full Version : Resistance becoming Support doesn't make sense to me



alutixusini
09-17-2015,
A chart hits a level multiple times but can't break above it - that's resistance - it's saying this stock doesn't deserve to be higher than that. If the price does break above it, then it's telling me the stock is lucky to be above that level, not that that level will now act as support and should hold as a pivot point where it might not trade below anymore.
Especially if the resistance before becoming support had many many hits on it - this means many times that the price shouldn't be above there and thus even more lucky for the stock to ever be traded above it, not that having so many prior hits on it as resistance now makes it an even stronger support level.

And vice versa for Support becoming Resistance.

Please enlighten, as this makes zero sense to me.
thanks.

AndrewGek
09-19-2015,
It's like telling a 2 year old "don't go upstairs" "don't go upstairs" "don't go upstairs", and if they somehow make it upstairs, they're allowed to stay up there only because they were told not to so many times in the first place. The more times they were told not to go upstairs actually works in their favor to be allowed to stay upstairs.

aojlhjpo09
09-19-2015,
Uh, what? If your asking what I think your asking, the stock only goes upstairs cause there is a demand for it to be upstairs. Or, mommy and daddy are tired, never really wanted the stock anyway, and are at their wits end so they're either going to hope the kid goes away and stays upstairs, or wait for it to come back downstairs and then deal with it then. Or, at least I think...

BrendaPaf
09-21-2015,
I really should give a better answer than the one I did above, so here goes.

There are a bunch of reasons a stock can start trading above resistance or below support. Earnings could be better than expected, industry or sector growth, favorable government policy, or, inversely, unfavorable government policy, industry or sector decline, earnings worse than expected. If a move is based on some type of fundamentals, than it is likely to be stronger because the value of the company, and therefore its stock, has increased or decreased.

The other part to it is that a move doesn’t have to be based on anything really other than a chart pattern. If a stock is hitting a support or resistance line enough and/or breaks it, there are enough traders out there trading based on technical analysis to cause the stock to go into a trend. So a stock that is trending or showing trading signals that technical traders use, whether there is any real reason for growth or not, will be in higher demand and therefore more valuable thus causing an increase in price.

If the move is based on little fundamental reasoning then the stock is likely to wind up overbought or oversold, and eventually go back below resistance or above support.

But basically for whatever reason the parents have changed their mind and decided to let the kid hang out upstairs or get locked in the basement. Basically though the kid is just subject to however the parents (traders) feel, whether the parent’s reasoning is based on the fact that the kid did or didn’t do something, or the parents are just doing what they were taught, either way the outcome is the same.