Kamis, 31 Juli 2008

Resistance becomes support

When a resistance level is successfully penetrated, that level becomes a support level. Similarly, when a support level is successfully penetrated, that level becomes a resistance level.
An example of resistance changing to support is shown in Figure 17. When prices broke above the resistance level of $45.00, the level of $45.00 became the new support level.
This is because a new "generation" of bulls who didn't buy when prices were less than $45 (they didn't have bullish expectations then) are now anxious to buy anytime prices return near the $45 level.



Similarly, when prices drop below a support level, that level often becomes a resistance level that prices have a difficult time penetrating. When prices approach the previous support level, investors seek to limit their losses by selling (see Figure 18).