The principle of Polarity

Polarity is where it all begins. This is supply and demand 101. We talk about momentum and we talk about trends. We use words like Fibonacci, Divergence and Moving Average. This is all fine but all of these are only a supplement to actual price analysis. Price is the only thing that pays. So price, by definition, is the most important technical indicator that exists.

The Principle of Polarity states that once a Resistance (support) level is breached; it changes its nature and becomes Support (Resistance) the next time it is approached. This happens due to change in Demand and Supply. When a resistance (support) is breached, it is because the demand (supply) had superseded the supply (demand) at that price level, thus breaching it.

In the future, when that level is approached by the price again, the same behaviour is anticipated, and the resistance (support), this time becomes the support (resistance) as new buyers (sellers) come in and again change the demand-supply balance.

What happens is that history essentially repeats itself, but the role of price at that level changes from resistance to support and vice versa.

From Edwards and Magee almost 70 years ago.

…here is the interesting and the important fact which, curiously enough, many casual chart observers appear never to grasp: these critical price levels constantly switch their roles from Support to Resistance and from Resistance to Support. A former Top, once it has been surpassed, becomes a bottom zone in a subsequent downtrend; and an old Bottom, once it has been penetrated, becomes a Top zone in a later advancing phase

Support becosmes resistance

resistance to support