DionysusToast,...If I were selling something to you,.of course I wouldn't hesitate to back up the facts regarding S&R levels.
But,..the advice given is purely for educational purposes, and totally "free" (to you), although it has cost me thousands and many many hours,days,weeks,months,years studying the markets.
Tip: Study the 5min forex charts, you'll get a better perspective on price action.
As I suspected - no-one can back this up. Even the fact that someone profits from S/R does not actually mean that it works.
Recently in a similar conversation about TA, a member who was vigorously defending TEXTBOOK TA claimed he couldn't back up his beliefs because he had invented his own TA methods, got a programmer to code them and that it was his secret and so he couldn't tell. The fact that this is obviously NOT textbook TA was lost on him but he'd painted himself into a corner with lofty claims and had no way out.
Your argument is similar, we discuss something mainstream, people defend it and when asked to discuss in detail they claim some hard-fought knowledge that they couldn't possibly reveal in public. i.e. they are talking sh1e.
Anyway - for those with an open mind, it would serve us well to first understand the concept of Anchoring.
http://www.sciencedaily.com/articles/a/anchoring.htm
Anchoring bias in decision-making
Anchoring or focalism is a term used in psychology to describe the common human tendency to rely too heavily, or "anchor," on one trait or piece of information when making decisions.
During normal decision making, individuals anchor, or overly rely, on specific information or a specific value and then adjust to that value to account for other elements of the circumstance.
Usually once the anchor is set, there is a bias toward that value.
Now - bear with me... As Mr Gecko rightly pointed out - we need to define clearly what support and resistance are and do. One of the issues with a lot of 'horizontal' TA is that it is 'fuzzy'. The fact is that S/R is vague both in terms of what a point of support & resistance is OR the what the expected reaction to that zone is.
With Fibonacci, people look at 23.6%, 38.2%, 50%, 61.8% and 100%. How much leeway is considered acceptable to a disciple of Fibonacci ? Well - if we consider the concept of anchoring, we should consider perhaps that a Fibonacci student would allow for instance 1% each side and consider it still valid. If we take 5 percentages and allow 1% each side, then we have a 1 in 10 chance of a retracement being at one of these zones. If our anchoring bias lets us allow 2% each side, then we have a 1 in 5 chance of a retracement being at one of these zones. With anchoring, we will tell ourselves it was the fib because price came close to the fib and that was our expectation. It is NOT cause and effect.
And so we come to S/R - a vague concept with a wide range is an IDEAL candidate for anchoring, even more so than fibs.
Proof would ultimately come from the kind of tests they do in medicine - double blind tests. Take someone that thinks they are trading off S/R and give them a fake chart with randomnly assigned points of support and resistance. Would we be surprised if their performance was as good on fake S/R as it is on 'real' S/R with all other parameters equal ? Personally, I would not be at all surprised if their results were just as good.
Now I will say that I do use Support and Resistance but only using level 2 & the tape. In this case is is very short term and the use is solely related to identifying from the order flow if someone has a large order to fill on the buy or sell side. The theory is that if someone is a buyer at that price, then the price cannot drop below that whilst that person is still a buyer. Repeated hits will of course deplete their order book and eventually break through. Sometimes this support is on the move too depending on how eager their client is to put the orders through - so sometimes it's more related to a specific player/route than a level.
