There are some very good psychological reasons behind each pattern and why they work. You can find more extensive material on this subject on our Members site. Below we will review the most widely used pattern, which is why it works so well. For this reason it is very important to understand the emotions behind the market, especially for short term trading. Support and Resistance Traders and investors alike often have a preconceived notion of when a stock becomes a good bargain.
Buyers generally step into the market when a stock declines to that level.
When this takes place, and the buyers step in, the stock starts to rise again. The phenomena becomes a self fulfilling prophecy. In effect, a support barrier has been created. The same is true for resistance levels, but on the sell side. When traders believe that a stock is overextended at a certain price level they will start selling at this resistance level which will cause a decline.