While today’s potential trade my not have the option liquidity to make for a good trade, it still highlights a very important lesson for when looking for support and resistance levels. One very common scenario that takes place in trading is when a former level of support is broken and then acts as resistance. The opposite is also true.
When levels of resistance are broken, they very often will turn into support levels in the move is valid. This gives a very good jumping off point when finding our levels and brings us to today’s setup quite nicely.
As you will see in the video below, Denali Therapeutics (DNLI) established a pretty strong level of support over the past few months, failing to go much lower than this mark several times. Now, it appears set to rally back to that mark.
This scenario setups the stage for a possible reject of this $26 level. However…
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