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Invalid failure

Invalid failure

When looking at price charts and their types, you will notice that after breaking a support or resistance area, the price will mostly return to that area. In such a situation, there are two situations in front of the price: either the failure is confirmed and it continues to move along the previous trend, or it returns to the top of the support level or the bottom of the previous resistance level and in front of these levels as before as the area A reversal of support or resistance behaves (retraces its previous support or resistance area).


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The return of the price to the top of the support level or the bottom of the resistance level after breaking these levels is called an invalid break. For more information, we suggest you read the technical analysis training article.

 

In the above figure, you can see that at first the price was able to break the support levels, but this failure was not valid and could not go through the downward trend; Therefore, it has returned above its previous support level. In other words, the price was able to regain its support level and continue to move along the uptrend with great strength.

The strengthening of the price movement along the upward trend after returning to the top of the support level is due to the activation of the minimum traders who were trapped and sold before the confirmation of the downward trend after the support level was broken.

In the above figure, you can see that at first the price was able to break the resistance levels, but this failure was not valid and could not go through the upward trend; Therefore, it has returned to the bottom of its previous resistance level. In other words, the price has managed to regain its resistance level and continue to move along the downtrend with great strength.

The intensification of the price movement along the downward trend after returning to the bottom of the resistance level is due to the activation of the minimum traders who, after breaking the resistance level, were trapped and started buying before receiving the confirmation of the upward trend.

In the chart below of the Dana symbol on the weekly time frame, you can see that the price is in an uptrend that is supported on the indicated ranges. At point A, we see the breaking of this level. But as you can see, after the price has returned to its previous support level, it has penetrated above it and taken it back, so to speak.

  Also read this article: Basic analysis training from zero to hundred

 

Therefore, an invalid failure has occurred. As you can see, after the invalid breakout, many buyers are encouraged to buy the stock and the stock continues to move strongly in the upward trend.

 

In the chart below belonging to the car symbol in the weekly time frame, you can see an invalid breakout that after hitting the bearish resistance level twice, we see the emotional purchases of non-professional traders at point A, so that the price was able to break its resistance level at this point. broke but failed to continue in the direction of the upward trend and has returned to its resistance range.

You can see that the price was able to take back its previous resistance level and penetrate below it again. Therefore, an invalid and unstable failure is formed. After the price returns to the area below the resistance and breaks the short-term upward trend lines that occurred after repeated returns to the blue resistance area, you can enter into a sell transaction.

 

As you have seen so far, support and resistance areas act as barriers to price movements. Most of the time, these levels act as retracement levels in the market; After hitting these areas, the price changes direction in the opposite direction of the previous movement, but sometimes due to the strength of the trend, it may be able to break that level.

After the breakout, two situations may happen: the breakout is confirmed and the price continues to move along the previous trend, or the breakout is unsuccessful and returns above the support level or below the resistance level and leads to a trend reversal.

Conclusion

After the price breaks a support or resistance area, it mainly returns to that area. In stock price charts, the return of the price to the top of the support level or the bottom of the resistance level after breaking these levels is called an invalid break.

Support and resistance areas act as barriers to price movements. Most of the time, these levels act as retracement levels in the market; In this way, after hitting these areas, the price changes direction in the opposite direction of the previous movement, but sometimes due to the strength of the trend, it may be able to break that level.

After the breakout, two situations may happen: the breakout is confirmed and the price continues to move along the previous trend, or the breakout is unsuccessful and returns above the support level or below the resistance level and leads to a trend reversal.

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