Silver chart attached.
Can you please comment.
Thanks.
My Response:
The market often retests the break of a support or resistance level due to the bank traders placing their trades.
For instance, in the weekly chart of gold, the banks initiated sell trades which caused price to break through the lows…
Once the market breaches these lows, traders perceive the market as being in a downtrend.
This perspective incites them to place sell trades, enabling bank traders to start taking some profits off their sell trades. This is the reason why we see a small pause or retracement forming three weeks after the market has broken the low.
A further move downwards encourages more traders to enter sell trades, as they interpret the pause or retracement as confirmation of a downtrend.
With most retail traders being short in the market, banks are able to take a much larger amount of profit off their sell trades. This results in a market upswing and forces most retail traders, who placed sell trades in the latter stages of the move down, to close their trades at a loss.
This scenario, in turn, places buy orders into the market, triggering a further rise in the price…
Eventually, price ascends to a point where enough retail traders have placed buy trades, enabling banks to introduce more of their sell trades into the market.
The placement of these sell trades prompts a fall.
Consequently, all traders who went long during the price increase close their trades at a loss, which injects sell orders into the market and causes the price to decline even more.
It’s not so much the market is returning to the support or resistance level.
Rather, the support and resistance levels happen to align with the point where the banks have enough orders in the market to place their trades. Try to understand the mechanics without relying too heavily on technical tools.
These tools simply provide a visualization of the unseen processes.
However, traders often mistakenly attribute the market’s behavior to these tools, especially when the market retests broken support.
Essentially, the market isn’t necessarily retesting the broken support level.
If you remove the level from your charts, you can’t assert the market is retesting the level, as it doesn’t exist until YOU put it on the charts.
Therefore, there must be another reason for the market’s return to this point.
That reason is because the point where the banks have enough buy orders to fulfill their sell trades aligns with the market’s break through the support level or area.
This is why the market will occasionally break a support or resistance level and not return to retest it, or only retrace a small distance before moving back in the direction of the trend.
The number of buy or sell orders required for the banks to place their trades doesn’t always necessitate a market return to the point of broken support or resistance, which explains why we don’t always see these retests.
Hope this helps…
PAN.