I mentioned earlier about how it is not that common for stocks (in particular),
to perfectly line up the potential support and resistance lines, which is why I often use zones of potential support and resistance instead, because the single lines sort of appear to have become blurred.
I usually blame the higher retail participation in stocks for this......dunno whether that is actually right or wrong.....but that is who I blame.......
However, in big liquid markets, like the international futures markets, which have a much lower retail participation (and those retailers that do participate, trade more like professionals anyway), show a much stronger respect for the levels, and a single line can often be used with confidence.
This wave chart below, is the current 4hr chart for crude light, just look at how beautifully the levels are respected.
Just looking at the price action, and the respect of the lines...nothing else
From the left,
Price moves lower and then pivots higher, so a horizontal line is drawn to mark the low where support was found.
Price then moves higher to retest the old line above, and tries to regain it, but eventually fails.
Price then comes back to the line just drawn , and briefly attempts to hold it, before breaking down (blue sideways arrow) through it.
That original line drawn, is now called 'the breakdown line' which marks where price last brokedown through a potential support level.
And that scenario is repeated perfectly all the way down (price finds temporary support, draw a line across the lows, price moves up and tests the old brakedown line above and eventually fails, price then returns to the newer potential support line, briefly attempts to hold on to it, and then breaks down again).
Note the two little green circles- they show where price could have, or perhaps should have, re-tested the old line again, but didn't have the strength to even reach it again, this can be interpreted as an aid towards confirming that price was still weak at that point in time, and would most likely continue to break down.
And note the change in behaviour when price begins to push higher again, the pull backs are very shallow and do not come back down and test the lower line (perhaps I should have drawn green circles there as well)
This current pullback will likely test the lower line, and if strong will find support and head higher again, or if really strong will reverse even before reaching it......
Does all that make sense ??
(from a trading perspective, the best place to find trades are at the edges of support and resistance. so when price was continuing to break down, the perfect place for a trade was to enter short at the down facing arrows, where price was testing the old breakdown lines and failing. And the reverse is true when price is strong and is trending higher)
