Something else to consider is how these levels may react to changing context. As a general rule, a broken area of support may turn into an area of resistance when broken. Conversely, if an area of resistance is broken, it may turn into a support level later, when it’s retested. These patterns are sometimes called a support-resistance flip.
Area of support breaks and turns into resistance when retested.
The fact that the previous support zone acts as resistance now (or vice versa) confirms the pattern. As such, the retest of the area may be a favorable place to enter a position.Another thing to consider is the strength of a support or resistance area. Typically, the more times the price drops and retests a support area, the more likely it is to break to the downside. Similarly, the more times the price increases and retests a resistance area, the more likely it is to break to the upside.
Psychological support and resistance
Buying an asset at $8.0674 and selling it at $9.9765 just isn’t processed the same as buying it at $8 and selling at $10. This is why round numbers can also act as support or resistance on a price chart. This phenomenon has become well-known over the years. As such, some traders might try to “frontrun” obvious psychological support or resistance areas. Frontrunning, in this case, means placing orders just above or below an anticipated support or resistance area.
Take a look at the example below. As the DXY approaches 100, some traders place sell orders just below that level to make sure those orders are filled. Because so many traders expect a reversal at 100 and many frontrun the level, the market never reaches it and reverses just before.
US Dollar Index (DXY) reverses before reaching 100.