Why does retesting of a broken support level or resistance level, or line is important? I have explained this in detail in this video. Please watch the video completely, because in this video I have also explained about some of our other important videos that you must watch, if you like to learn about our trading system and using the tools like Fibonacci Numbers, and some other important things that are vital for you, and if you want to become a consistently profitable trader.
So, Why Retesting of a Broken Resistance Level Is Important?
When you locate a support level on a chart, the first question is that whether it is a valid support line or not?
It is the market that has to answer this question. Retesting is one of the ways that markets tell you whether the support level is valid or not.
Retesting of a broken support level means that the price goes up and tries to break above the broken support level.
When a candlestick closes below a support level, we know the support level broken. But still we don’t know whether the broken support level is valid or not. If some of the next candlesticks go up and try to close above it, then we can say that the support level is invalid because we expect a support level to work as a resistance level. So, the important rule that helps you to know whether a broken support level is valid or not is that a broken support level must work as a resistance and visa versa.
Now we have a great example, which is the support level breakout that we have been following during the past several days. To learn about this support level breakout, or short trade setup, please read these articles:
- Support Level Breakout Trading Strategy Explained
- Taking Short Positions Explained
- Fibonacci Trading Strategy After Sideways Market Breakout
Below is how this support level breakout looks on the monthly time frame. The last closed monthly candlestick (July 2020) has closed below the support level. Although the next candlestick, which is the currently forming candlestick (August 2020), has already rested the broken support level, and it seems this broken support level is working as a resistance, still the currently forming candlestick needs several days to close. Therefore, based on monthly time frame, we still need time to come to this conclusion that whether the broken support level is working as a resistance or not:
This is the 0.91867 support level breakout on the weekly chart:
On the daily chart, the support level breakout has been retested and confirmed twice so far. The last closed daily candlestick which is the 2020.08.12 daily candlestick has formed a new sell signal or short trade setup on the daily chart and below the broken support level. Therefore, based on the daily chart, the 0.91867 support level is valid and is now working as a resistance level:
The conclusion is that retesting of a broken support level is a big help to validate level. Like what you see on the above daily chart, sometimes more than one short trade setup forms below a broken support level. It is exactly the same when a resistance level breakout forms on the charts. Don’t forget to read this article carefully: Bearish Engulfing Candlestick Pattern As a Strong Sell Signal