Question About Key Price Points

I have a question about key price points that I'm sure will be easy for somebody on the forum to quickly answer. Thanks in advance, here it is:

By "key price points" I mean resistance points, breakout points...etc

From the material I've been able to find on technical analysis the vast majority of explanations for why key price points exist center on the most recent price patterns, using them to identify recent highs and recent lows and then somewhat attaching a possible meaning for them going forward. This explanation, while somewhat useful in a practical sense, does not fully (if at all) explain why these prices exist or how they are determined aside from watching price data unfold. I have another explanation I've been pondering.

Consider this closed box hypothetical (oversimplified) scenario:
-The occurs in a world where there is only 1 brokerage to trade through,
-Every market participant cuts losses on a per share basis at a constant -20% from trade price
-The world's only brokerage automatically liquidates every open trade on a per share basis that has a -10% MTM unrealized loss. (This makes the 20% loss cutting clause above null)
-An equity has an IPO and starts trading at $30
-As the result of a single strong bull trend, 1 year later the stock is trading at $100
-The stock then begins a bearish trend which is confirmed when it fails to pass its prior high and then dips below its prior low, let's call it $90.
-The stock then takes the next 6 months declining until finally it trades at $30 6 months later.

As the stock begins to decline from $90 it will have resistance points and breakout points. Based on what I've read these will be defined by recent price movements or lack of movements, the majority of which will have occurred right at the top of the market or at some point during the bearish trend.

I want to submit an alternate explanation of why these key price points exist and hear thoughts. During the year long bull market the majority of open positions/open shares will be on the long side. Each share's most recent trade price reflects its starting point for the brokerage's automatic -10% MTM liquidation rule. If I look at the distribution of entry prices for all shares open in a long position right at the top of the bull market it will not be an even distribution. There will be clusters of shares that were opened long around certain prices. As the bear market unfolds all open long positions will be automatically liquidated once they are -10%. The forced liquidation increases supply and causes the MTM price to decline further. It is when the mark passes these clustered prices that an avalanche of selling begins. In this hypothetical scenario I wouldn't necessarily need to watch prices unfold on the bear trend to know where the key price points would be because I would know where the required selling would start based on the long shares outstanding price distribution.
If I knew the distribution of when traders say uncle and cut losses, assuming it was a normally distribution or at the very least skewed towards a particular point, I could substitute this to determine where these "breakout" prices would occur on the way day down.

Do you think this make sense? If so, doesn't that imply that prices/acceleration of the bear trend will follow the distribution of where volume traded on the way up? Does this mean that prices will not follow a log normal distribution?

Thanks!

 

You don't know till it happens.
It takes a lot of things for one to pull the trigger.
It's hard to know when Goldman will meet the margin call.
And it's not this way that you're going to build something material.
You assume too much. The existence of a spurious phenomenon,
A world with only one broker ... A probability distribution ...
Who cares why they exist ? If they really do exist.
Flow traders did what you're looking for.
There were no fancy stuff. Just orders.
They didn't care to know where XYZ,
Has bought his millions shares.
Because it's useless.

 

...Ok, thanks for the response I suppose.

 

You're guessing it wrong.
I am not asking for recognition.
No need to be grateful about my response.
Wish that someone else could help you.
Cause it looks like I am not the man.
Lol ... Wish you the best.

However I speaked from my experience.
Feel like I've trashed years overthinking about trading.
When I could have spent time testing and building strategies.
Learning some statistics, programing and trading for real.
Just don't want you to reproduce what I've done.
Popping your head against a wall for nothing.
Because I don't see the value in your stuff.
However I am maybe blind. Donno ...
It has to stay real. Low level.
And practical at best.

Empiricism > Rationalism

As Taleb says :
I'd rather live in a place where nothing makes sense but things work rather than a place where things make sense but don't work #Antifragile

And I feel like your trying to make sense about something that doesn't work ...
Well ... Actually that's the only time we should be allowed to rationalize.
To solve problems ... To fix things that doesn't work. To reduce harm.
But in this case, We can't fix supports and resistances.
It's out of our control. And it won't help the P&L.

 

Good start,there's a few other aspects you need to consider the first being participants.

 

You are welcome, cliff;
for more help you may want to use an actual stock-etf, like SPY. Even if you dont trade-invest that one -wisdom is profitable to direct