Many traders think trendlines, like support and resistance "control" price movement but they don’t. These areas simply mark where price either paused or reversed in the past.
Here’s the real deal: price moves because of the depth of the order book.
When price holds at a certain level or breaks through it, it’s not because the level is special. It happens because there’s buying or selling pressure (liquidity) at that spot. That’s what drives price action—not magic lines or patterns.
What Moves Price?
1. Order Book Depth: The amount of buy and sell orders waiting at different price levels.
2. Buy and Sell Pressure: How much demand or supply exists at a given time.
3. Big Picture Factors: Global news, market conditions, and overall liquidity in the system.
Support and resistance levels sometimes seem to "work" because they show where traders previously placed orders. These areas reflect unfinished business, not unbreakable barriers.
Why Do Breakouts and Retraces Happen?
Breakouts: When price moves through a resistance level, it might look like the start of a big trend. But if the order book doesn’t have enough depth to support the move, price often reverses.
Retraces: Price sometimes "fills gaps" when it moves too fast, leaving areas of low liquidity. These retraces aren’t about the level itself but about balancing the order book.
What Actually Matters in Trading?
1. Seasonality: Certain times of the yearto repeat patterns because of how traders behave during those periods.
2. Liquidation Cascades: When big moves trigger stop-loss orders, they create chain reactions. These sudden shifts often reverse once liquidity runs out.
Forget about drawing perfect lines or triangles.
Focus on liquidity, timing, and market sentiment.
Key Takeaways
Look at the order book: Where are most buy and sell orders?
Don’t trust levels blindly—they only show past activity.
Use seasonal trends and inefficiencies (like retraces) to guide your strategy.
Keep it simple. Price is all about liquidity and pressure in the system. That’s your edge!