Notice on the chart below YYY is pushing up against a previous high. This is referred to as overhead resistance zone. The general rule of thumb regarding overhead resistance,
This is a zone where price will often struggle to get through. The last time price reached these levels sellers overwhelmed buyers pushing price back down.
It can take time before enough buyers step in to break through a previous high but once it happens that resistance will now become a zone of support.
These zones aren’t exact prices levels but more of a general area where price will stop dropping or stop rising.
Think of a roof and or a ceiling. Once broken the rule is they flip. When price smashes through support zone that zone will then often become a zone of overhead resistance at some future date when price recovers and begins its climb.
Previous highs becomes overhead resistance or where sellers outweigh buyers, previous lows become support zone where buyers out weight sellers.
YYY is now pushing up against a ceiling. A zone of overhead resistance. As a trend trader I will stay with the “trend until it ends”, but at the same time I can make logical bet based on past price performance.
First, I turn to the indicators. Notice the blue lines from left to right. Last time price was in this zone the indicators TSI, MACD and RSI where much higher.
The indicators are telling me price has room to move to the upside. The benefit of the doubt here goes to current trend.
“The trend is your friend until it ends”
Price should continue to move up. Last week I prepared for this by downsizing CEFL and moving those funds into its un-leveraged counter part YYY which has identical price chart.
I downsized my leverage just in case price stalls out here and pulls back. Which is common and expected near zones of resistance.
Learn to read what the indicators
No matter what you trade, learning to read what the indicators are telling you will improve your trading results.