Chartered Market Technician (CMT) Practice Exam

When a support level is violated, it often indicates a shift in market sentiment and can lead to significant changes in how traders perceive that price level. Once a support level has been broken, and the price bounces back towards that level, it tends to act as overhead resistance. This means that when the price retraces to that previously established support level, traders may view it with skepticism.

The reasoning behind this is that the violation suggests a weakening of buyers at that price point, implying that there are now more sellers willing to sell at that level. As a result, this formerly supportive price point can create selling pressure when approached again, leading traders to take short positions or avoid buying until the price demonstrates strength beyond the former support.

Therefore, in market analysis, it is crucial to recognize that previously violated support levels often transition to resistance levels, reflecting a psychological change in how traders react to price movements. This concept is vital for understanding market dynamics and making informed trading decisions.