Question 79—Support, Resistance, and Targets
Answer
1. B
2. C
3. A
4. E
5. D
A false downside breakout, accompanied by a bullish divergence is one of the strongest signals in technical analysis. Once prices break below an important support line, you need to watch very closely what happens next: Will the decline accelerate or will the break fizzle out? When a price bar closes above the previously broken line of support it gives a powerful buy signal. Here this signal was reinforced by a bullish divergence of MACD-Histogram. Notice the pullback to support between points D and E, which provided an excellent opportunity to hop aboard the long trade. You cannot count on such pullbacks happening very often; they are an exception rather than the rule.
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