How to determine if a support or resistance will hold
When price goes to a key level, that is, a support or resistance level, it will either hold and reverse price or it will break and be violated. There are no hard and fast rules for determining if a key level will hold and reverse price but I can give you some guidelines on what to look out for that would increase the odds that a support or resistance would hold.
1. The greater the speed and extent of the previous move, the more significant the support or resistance will be.
In this case, watch out for big candles leading up to the key level. Consecutive big green candles in an uptrend or consecutive big red candles in a downtrend shows that the move has speed or momentum. Also, the candles have high volatility or the ranges are large. This big move towards the key level shows that the buyers or sellers in the previous move are overextended and they might be getting exhausted, and so would be lacking enthusiasm to continue their move at that key level.
2. Examine the amount of time elapsed.
By looking at when the market touched that key level in the past and the general market conditions, it could tell you whether the market is likely to regard that key level as important. The longer the price has been away from that key level, the more significant it is that the level would hold as support or resistance because other traders who trade in higher time frames would be attracted to that level.
3. Look for strong price rejection.
The presence of rejection candlesticks at a key level, like pin bars and also rejection patterns like two bar reversals, three bar reversals and engulfing bar patterns is a high probability sign that the level will hold. When you see strong price rejection at a key level, you should be confident that the level would hold as support or resistance. Some reversal strategies are based on this effect.
1. The greater the speed and extent of the previous move, the more significant the support or resistance will be.
In this case, watch out for big candles leading up to the key level. Consecutive big green candles in an uptrend or consecutive big red candles in a downtrend shows that the move has speed or momentum. Also, the candles have high volatility or the ranges are large. This big move towards the key level shows that the buyers or sellers in the previous move are overextended and they might be getting exhausted, and so would be lacking enthusiasm to continue their move at that key level.
2. Examine the amount of time elapsed.
By looking at when the market touched that key level in the past and the general market conditions, it could tell you whether the market is likely to regard that key level as important. The longer the price has been away from that key level, the more significant it is that the level would hold as support or resistance because other traders who trade in higher time frames would be attracted to that level.
3. Look for strong price rejection.
The presence of rejection candlesticks at a key level, like pin bars and also rejection patterns like two bar reversals, three bar reversals and engulfing bar patterns is a high probability sign that the level will hold. When you see strong price rejection at a key level, you should be confident that the level would hold as support or resistance. Some reversal strategies are based on this effect.
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