Because of supply and demand basically, you want to see steady growth not volatile growth, if we keep pushing up with no retracement eventually it will whiplash back down harder than it went up. Why is that, from what I understand supply zones basically mean smart money wants to sell in that zone, so when the price hits a supply zone it will typically start to reject unless their is a catalyst to drive it further, when demand zones are hit big buys come in from smart money. Now back to why we need to go back and forth up and down. It’s not so much of testing lows as it is testing support and resistance, once we break a resistance of importance we should in a healthy stock movement go down to retest the resistance and see if it is still a strong demand zone to bounce off of. If it bounces it is confirmed to be demand zone and support. If it breaks back down well then it’s not support it was a fake break and it’s still resistance. Also gap fills up and down are based on building the right structure which is also why we need to test support and resistances on retracement because if a gap is left empty there is a chance of it being filled later and this could cause a lot of volatility if it fills later rather than sooner so smart money will tend to fill those gaps quickly imo.
Gohstfacekila t1_ixotjdi wrote
Reply to comment by PharmDinvestor in $SPY about to peak at 407.20? by Confident_Abroad4984
Because of supply and demand basically, you want to see steady growth not volatile growth, if we keep pushing up with no retracement eventually it will whiplash back down harder than it went up. Why is that, from what I understand supply zones basically mean smart money wants to sell in that zone, so when the price hits a supply zone it will typically start to reject unless their is a catalyst to drive it further, when demand zones are hit big buys come in from smart money. Now back to why we need to go back and forth up and down. It’s not so much of testing lows as it is testing support and resistance, once we break a resistance of importance we should in a healthy stock movement go down to retest the resistance and see if it is still a strong demand zone to bounce off of. If it bounces it is confirmed to be demand zone and support. If it breaks back down well then it’s not support it was a fake break and it’s still resistance. Also gap fills up and down are based on building the right structure which is also why we need to test support and resistances on retracement because if a gap is left empty there is a chance of it being filled later and this could cause a lot of volatility if it fills later rather than sooner so smart money will tend to fill those gaps quickly imo.