When price moves sideways for a while, it forms a range: a ceiling it keeps failing to break and a floor it keeps bouncing from. Anyone can see those levels on a chart, so many traders use them the same way.
Stops gather in the same place
Traders who buy inside a range often put their stop-loss orders just under the floor. Breakout traders put orders to sell just under it too. The result is a pool of sell orders waiting a little below the obvious low.
Why levels often break first
When price dips into that pool, the stops trigger and add selling. Leveraged longs nearby may be liquidated. Price can drop sharply for a moment, then return above the level once the forced selling is done. That is why a break of an obvious level is not, on its own, proof that the market has turned.
What to take from it
- Mark the obvious highs and lows before you do anything else.
- Expect them to attract orders, and expect fast moves around them.
- Wait to see whether price holds outside the level or comes back inside.