Hong Kong Economic Journal --- July 24, 2000

By now, readers should appreciate that Modal Points offer important information on support and resistance. However, every bar has a Modal Point. How can we know which Modal Points are effective and which are just random noise?

Figure 1 shows the Prosticks chart of Japanese Yen. As can be seen, after rallying strongly from the 104 low made in 24/6, price tops and congests around 108 level.

Also can be seen from the Figure, the high of the congestion coincides with a nearby Modal Platform formed from the Modal Point A, B, and C, thus showing that the Modal Platform has a strong resistant effect on prices. The question is, how can we forecast beforehand that the Modal Points of A, B, and C are important and thus the Modal Platform is effective?

The Modal Points of A, B, and C are important because of the following reasons.

Bar A is a long range bar. During that day price had fallen tremendously, signifying that a lot of selling pressure had existed, especially at the Modal Point, and the bears had won the game. Thus, when price rose again to similar price level of the Modal Point, two things might happen. First, those selling pressure would resurface. Secondly, those weak hands who had longed at A now recouped most of their heavy floating loss and thus were anxious to get out of the market, putting additional selling pressure on prices. Thus, the Modal Point of A is important.

The Modal Points B and C are important. Notice that the bar of B and C form a double top, signifying the presence of selling forces from institutional players. Their Modal Points, which lie at the same price, are the price level which these players put their money into.

Because of above, we can conclude that the Modal Platform formed by A, B, and C, is indeed, a strong resistance level for future prices. However, even the strongest resistance level is liable to be broken. Otherwise, price will only consolidate up and down, and will never trend. As such, how can we know that the price will be contained by the platform instead of breaches it?

To answer this question, we need additional technical tools. The lower pane of Figure 1 shows the corresponding Stochastics plot of Yen. As can be seen, the Stochastics is in the overbought zone when price approaches the platform. Thus, the market may lack the momentum to break the platform on first attack.

Maybe, price will eventually succeed in breaking the resistance platform after the Stochastics has come out of the overbought zone. However, not until we see that price closes firmly above the platform with the Active Range stuck above it, the uptrend of Yen will still have hindrance.