I was trading the 97.00 resistance level of the AUDJPY this morning (H1 chart), and something caught my attention that I had to share.
I see this all the time when a support or resistance level gets tested. When a support or resistance gets tested, I typically see the pips jump approximately 10-15 pips above the assumed level before they retrace. My conclusion, is that if a price reaches a resistance area, many speculative traders probably have Buy orders just above the resistance level. Then, if the price breaks the resistance area, they hope to capture the continued movement.
Fundamentally, if all these Buy Orders are in place just above the resistance level, the price creeps up to hit all these buy orders for the counter party sellers that are assuming a retrace. because of all these orders that exist, the price creeps up, grabs all those buy orders, and then retraces after they are exhausted.
When I was placing my Buy Stop order on this resistance level, I placed it at 97.20, about 20 pips above the resistance level. My Buy order never got triggered, but prices hit as high as 97.12 on a 97-97.04 resistance level.
I wanted to share this because I think alot of people enter “breaks” too early or too late, and the observation that price may not just test a level, but may need to increase slightly past that level to fill all the sells entering the market may be something that never came across some traders’ minds. If someone had placed their buy at 97.04 or 97.10, just above the resistance, it could have prematurely triggered their buy.