The longer this multi-decade support resistance zone the stronger!
Recall this little lesson ‘Significant support resistance levels are stronger: USDJPY case study‘
Technical analysis works on probabilities but there are “rules” to follow. A particular rule says that the more significant a level is, the stronger it becomes.
- The more obvious a level is so that ‘I see it, you see it and many sees it’, the more followers it has.
- Levels on higher time frame are stronger than those on lower timeframe.
- The longer duration that the level holds, the stronger it is.
- The more times the level has been tested or validated (by price encountering the support resistance and turning away), the more meaningful it is.
- Traders should assume that a level will hold until it is broken.
- When a significant level breaks, the outcome is a bigger move.
As we can see from price action after USDJPY encountered the 103 level back in May, directly or indirectly “Rules” #1 – 5 above were complied with. As a result, the pair spent the following 5 months in consolidation.
What should one expect from price action this time?
From the daily chart we can see that the 5-month consolidation was a symmetrical triangle chart pattern followed by a logical breakout in line with the previous upwards momentum. The most likely scenario therefore to expect is a retest of 103. Rules #5 and 6 to apply.
Traders should assume that a level will hold until it is broken.
When a significant level breaks, the outcome is a bigger move.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
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