One of the most powerful concepts in technical analysis is role reversal, also known as polarity. When a support level breaks, it often becomes resistance. When resistance breaks, it often becomes support. Understanding this phenomenon can dramatically improve your trade entries and timing.
Understanding Role Reversal
Role reversal occurs because of market psychology and trapped traders. When support breaks, buyers who purchased at that level are now underwater. Many will look to exit at breakeven if price returns, creating selling pressure. This former buying zone becomes a selling zone.
Key principle: Role reversal works because of human psychology. Trapped traders create pressure at old levels, turning support into resistance and resistance into support.
Why Support Becomes Resistance
When support breaks down, several market dynamics come into play:
Trapped Buyers
Traders who bought at support are now holding losing positions. If price rallies back to their entry, many will sell to exit at breakeven rather than risk further losses.
Failed Bulls Turn Bearish
Traders who were bullish at support may now turn bearish after the level fails. They become sellers on any rally back to the broken level.
Short Sellers Enter
Technical traders recognize the broken support and look to short when price retests it from below. This adds selling pressure at the former support level.
Support to Resistance Example
TSLA has strong support at $200 that held three times over two months.
On the fourth test, price breaks below $200 with heavy volume, dropping to $180.
Price rallies back toward $200 over the following week.
At $198-200, selling pressure emerges and price reverses back down.
The old $200 support is now acting as resistance.
Why Resistance Becomes Support
The opposite dynamic occurs when resistance breaks up:
Trapped Shorts
Traders who shorted at resistance are now underwater. If price pulls back, they may cover their shorts to limit losses, creating buying pressure.
Failed Bears Turn Bullish
Those who were bearish may now flip bullish after resistance breaks. They become buyers on any pullback to the broken level.
New Buyers Enter
Technical traders who missed the breakout see pullbacks to former resistance as buying opportunities. This adds demand at the new support level.
Resistance to Support Example
AMZN has resistance at $150 that rejected price twice.
On the third attempt, price breaks above $150 with strong momentum, reaching $165.
Price pulls back and tests the $150 area from above.
Buyers step in at $150-152 and price bounces higher.
The old $150 resistance is now acting as support.
Trading the Role Reversal
The Retest Entry
The classic role reversal trade involves waiting for the retest:
- Wait for a clean break of support or resistance
- Wait for price to return and retest the broken level
- Look for rejection at the level (reversal candle pattern)
- Enter in the direction of the initial breakout
- Place stop loss on the opposite side of the level
Entry Techniques
There are several ways to enter role reversal trades:
- Limit order at the level: Set a limit order right at the broken level for the best price
- Zone entry: Enter anywhere within a zone around the level
- Confirmation entry: Wait for a rejection candle before entering
- Break of structure: Wait for price to show direction after touching the level
Confirming Role Reversal
Not every broken level will reverse roles. Look for these confirmation signals:
Volume Confirmation
- High volume on the initial break increases validity
- Lower volume on the retest suggests less opposing pressure
- Volume spike at rejection confirms traders are acting at the level
Candlestick Patterns
- Pin bars or wicks at the level show rejection
- Engulfing patterns confirm reversal
- Inside bars at the level suggest consolidation before continuation
Multiple Timeframe Analysis
- Higher timeframe levels are more significant
- Role reversal on daily charts is more reliable than on 5-minute charts
- Confluence with other higher timeframe levels adds strength
Pro tip: The best role reversal setups occur when the initial breakout is strong and decisive. Weak breakouts often lead to failed role reversals.
Common Role Reversal Patterns
Break and Retest
The most common pattern. Price breaks a level, pulls back to test it, then continues in the breakout direction.
Triple Test Breakout
A level holds two or three times as support/resistance, breaks on the next test, then becomes the opposite. These are high-probability setups because the level is well-established.
Range Breakout
When price breaks out of a trading range, the range boundary often becomes the opposite. Range highs become support on upside breakouts, range lows become resistance on downside breakouts.
Stop Loss and Risk Management
Proper stop placement is crucial for role reversal trades:
- Standard stop: Place stop just beyond the level with a buffer
- Structure stop: Place stop beyond the next structural point
- ATR-based stop: Use Average True Range to set stop distance
The benefit of role reversal trades is that they offer clear invalidation points. If the level fails to hold in its new role, the trade thesis is wrong.
When Role Reversal Fails
Role reversal does not always work. Watch for these warning signs:
- Weak initial break: If the breakout lacked conviction, the retest may fail
- Strong opposing trend: Role reversal against a strong trend often fails
- News events: Fundamentals can override technical levels
- Extended price: If price moved too far from the level, it may not return
- Multiple failures: If a level fails to reverse roles once, be cautious on subsequent tests
Advanced Applications
Moving Average Role Reversal
Dynamic levels like the 50 or 200-day moving average also exhibit role reversal. When price breaks below a moving average, it often acts as resistance on rallies. When price breaks above, it often supports pullbacks.
Trendline Role Reversal
Trendlines can also reverse roles. A broken uptrend line may act as resistance. A broken downtrend line may act as support.
Fibonacci Role Reversal
Fibonacci retracement levels that act as support or resistance can flip roles after being broken, adding another tool for identifying potential reversal zones.
Track Your Role Reversal Trades
Pro Trader Dashboard helps you log and analyze your support/resistance trades to see which patterns work best.
Summary
Role reversal is a fundamental concept where broken support becomes resistance and broken resistance becomes support. This phenomenon occurs due to trapped traders and shifting market psychology. Trade role reversals by waiting for clean breaks, then entering on the retest with confirmation. Use volume analysis and candlestick patterns to confirm the reversal. Place stops beyond the level for clear risk management. Remember that role reversal works best when the initial breakout is strong and in line with the larger trend.
Learn more: support and resistance basics and supply and demand zones.