Principle of price movement
I will like to talk about what I believe is one of the foundations of Technical analysis, it is key to understanding technical analysis, which is how price moves, this principle is universal it can be applied in any market, but it does not always happen but it occurs frequently, but with skill and experience you will be able to master it.
Price moves vertically then diagonally or horizontally after which you can expect a Continuation or Reversal. Vertical moves define trend. Diagonal moves continue with the momentum. Horizontal moves consolidate the conquest.
As price moves it will hit a ceiling (resistance) or a floor (support) which it can not penetrate with ease. At these levels you will see on your charts turning points in the price. When the price penetrates these levels we have a breakout. When we have a breakout of the resistance level the price will initially accelerate away from it very quickly. It should then make a parabola type u-turn and retest the resistance level which now acts as support and vice versa. Illustration below.
This formation is something that will take place over several candles/days. Sometimes the parabola forms a hook, which will require a different approach, see illustration below.
Sometimes it fails or doesn’t break the support/resistance totally and the support/resistance looses significance, see illustration below.
If you understand this basic concept, then what is required is skill and experience in playing them. In subsequent post I will be drawing up illustrations to further buttress this point.
