The Principle of Polarity in Technical Analysis

The Polarity Principle is a key concept in technical analysis that relates to support and resistance levels. According to this principle, when a support level is broken, it becomes a resistance level, and when a resistance level is broken, it becomes a support level.

For example, if the price of an asset breaks through a strong resistance level, that level may become a support level for future price movements. This is because traders who previously sold at that level may now see it as a good opportunity to buy.

Similarly, if the price of an asset falls through a strong support level, that level may become a resistance level for future price movements. This is because traders who previously bought at that level may now see it as a good opportunity to sell.

In the chart below, an obvious example of this state has shown. In technical analysis, this concept is known as The Principle of polarity.

Psychologically, the Polarity Principle is based on the idea that once a support or resistance level is breached, it can create a shift in sentiment and behavior among investors. For example, once a support level is breached and becomes a resistance level, investors who previously saw the level as a buying opportunity may now see it as a selling opportunity, potentially driving prices down. This shift in sentiment can be driven by factors like changes in market conditions or investor expectations, which can cause investors to reevaluate their positions and behaviors.