We began looking at topics that are important for charts recently. Last time, we mainly discussed the importance of resistances and supports, which indicate price limits. Here, we will continue on our journey and look at further essential chart analysis topics.
Polarity describes the process when asset prices go past their supposed limits. This means that there has been a significant shift in the sentiment of an asset.
Different breakthroughs mean different things. Going past a resistance level generally means the sky’s the limit for futures price points. This makes it a great place to jump in for buyers. The price will likely keep on going up until it meets a new resistance level. The previous resistance level will likely become the new support. Thus, overall, traders evaluate the asset at a much higher point than before.
A bearish drop below the support is more worrying. The price will again keep dropping until it meets a new support level. This is where sellers have likely reached a point of exhaustion. After this point, the price of an asset is likely to bounce up again somewhat. The people who generally benefit in these kinds of scenarios will be the ones shorting the asset.
Generally speaking, support and resistance levels indicate that traders can rest for a while. Any sudden new trend will subdue. However, times of polarity indicate the opposite. Once these limits are passed, there is some hustle and bustle. These indicate a time of short term confusion while traders readjust their expectations.
So, overall these lines help traders keep in mind the current status quo of an asset. However much it may move. But they are certainly subject to change. They only indicate what traders currently believe the price could be. Polarities are signs that things are changing, for the downside or upside.