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Calculates the second price ceiling above the pivot, exposing a further derived boundary where accumulated selling pressure may intensify.
Resistance 2 (R2) is the second resistance level above the pivot point. It represents a further potential ceiling for price movement.
Resistance 2 (R2) is the second resistance level calculated from pivot point analysis, located above Resistance 1 (R1). This level represents a higher potential price ceiling that comes into play when R1 fails to contain the rally. Reaching R2 typically indicates significant buying pressure and a more bullish session, marking potential overbought conditions or exhaustion zones.
The calculation:
Resistance 2 (R2) = Pivot Point + (Previous High - Previous Low)
Example:
Previous High: $55 Previous Low: $45 Previous Close: $50 Pivot Point: $50 Previous Range: $55 - $45 = $10 R2: $50 + $10 = $60
Why R2 matters:
- Secondary resistance: Comes into play when R1 fails
- Strong rally indicator: Indicates significant buying pressure
- Potential reversal zone: May mark extreme overbought conditions
- Trading boundary: Often contains intraday moves
Interpreting price action at R2:
- Rejection at R2: Strong resistance found; potential reversal
- Break above R2: Very bullish; price may test R3
- Quick move to R2: May indicate euphoria or momentum buying
- Grinding to R2: Sustained buying pressure
Trading applications:
- Overbought exit: Consider taking profits at R2
- Short entry zone: Watch for reversal signals at R2
- Long profit target: Use R2 as extended target
- Range definition: R2 often marks upper boundary of range
R2 significance:
- Range-bound days: Price rarely reaches R2
- Trending days: R2 may be tested in strong uptrends
- News events: Major positive news can drive price to R2 quickly
- Gap up days: May open near or above R2
Combining with other analysis:
- Volume climax: High volume at R2 may signal exhaustion
- Moving averages: R2 near MA increases significance
- RSI overbought: RSI overbought at R2 strengthens reversal case
- Previous resistance: R2 near historical resistance is stronger
Limitations:
- Rare tests: Most days don't reach R2
- Can break: Strong rallies can push through R2
- Calculated level: May not align with actual supply/demand zones
R2 represents a significant resistance level typically only tested during strong rallies. When price reaches R2, traders should watch for reversal signals, take profits, or look for breakout confirmation to higher levels.