derived from the thread 'what causes spikes?' by k p; I'd like to invite any & all here to take a different approach and answer the question in the subject line. Very often as a new / struggling trader, I continued to wonder why things happened the way that they did in the market. Why did X blow through a support zone, or why did resistance hold on this instance but last week with the same exact setup - it did not? It was not until I changed the way in which I looked at markets from a reactive to a proactive manner. if this thread gets any level of attention I'll come back later with my own approach to viewing a market. otherwise, let the trolls take it away! inb4 stealthvendor accusations from @marketsurfer
8 days ago the dollar had a huge positive day and subsequently broke out upside with follow through. In hindsight it looks easy but the day of that massaive green bar one could say the tight liquidity areas/levels were withdrawn. Can small technical traders do this or this big money at work.? Anyway , i would guess it was some well known macro release but i cant say for sure.
The answer is that the market context is different even though the trade setup is the same. Regardless, if you don't post any chart examples of your trade signal holding at resistance one week and then not holding another week via your own question... Its going to be another long thread of philosophical answers or debates. Without market context (understanding the price action before the appearance of any trade signal), you'll consistently have questions about the "why".
Philosophical how? The point was for anyone interested to post their context and rationale behind their POV. eurusdzn missed the point.
''Why did X blow through a support zone, or why did resistance hold on this instance but last week with the same exact setup - it did not? ' I think we all wish we knew the answer Sometime in a strong downtrend, previous support will act beautifully as resistance, and sometimes...it doesn't! I guess nothing works all of the time, and it's about playing the percentages
If you know "why" you automatically know what and where. Because you know why. I still have to draw my first support or resistance line in my life. Never understood why I should. Didn't need it.
The "why" for me is Auction Market Theory. But in terms of day to day trading, I'm only interested in whether or not price rejects an extreme. If it rejects the upper limit, I go short. If it breaks through, I go long. There's no angst over "why" traders are behaving as they do at that particular moment. Either price breaks through the limit or it doesn't. Makes no difference to me.
I normally should be already long a long time if it breaks through. It can only break though if it was already rising some time, so why not take the first part too? Same logic for shorts. Resistance means that prices were rising and might be blocked there. So you missed the long till that moment?
One has to start somewhere. If I had gone long when it rejected the lower limit and held until it reached the upper limit and it then broke through that limit, then I would have been long before the break. If it doesn't break thru, then the long is exited and the short is taken.