Levels: breakout and role reversal
Lesson 21 of 39 in the course “Crypto”. Free, with animations and a quiz.
A level is a price where the market already turned. Resistance is a level above, where rallies kept stalling. Rule of thumb: the more touches (3 or more), the more visible the level is to everyone.
A candle closed above the level. A breakout counts on the candle close, not on the wick (the thin tail): a wick can just poke the level and come back. Resistance is broken.
Role reversal: old resistance becomes support, a floor price can bounce off. Price came back to the level to test it. That return is called a retest.
Price bounced off the level and moved up. The basics: this is the breakout + retest pattern. It does not always work: if a candle closes back under the level, the breakout was false.
Check yourself
- What makes a level strong?
Correct answer: Many touches and reversals at it. The more often price turned at a level, the more people see it and place orders there. A reaction is more likely, not guaranteed. - Resistance broke and price came back to it from above. What is the level now?
Correct answer: Support. That is role reversal: after a breakout the old ceiling often works as a floor. - Which is more reliable: entering on the breakout or after the retest?
Correct answer: After a retest with a confirming candle. A retest with confirmation filters out some false breakouts. Price may also run without a retest, and that is fine: a missed trade is not a loss.