A different way of playing support and resistance?

[BeginnerJoe]

pure lulz

Nut'ing lulzy about it. Here, took a couple of goes, and got shaken out by a fib level. I am still wanting to short it. But under observation for now.

 

[ChocolateDigestive]

got shaken out by a fib level

thanks BJ you cheered me up no end.

 

[ChocolateDigestive]

You mentioned a kind of 'vacuum effect' in your first post. In my opinion this is very, very common and very important. It could to a large extent be the basis of an entire method, albeit one that requires balls as big as a bag full slapoopies to execute. It would principally be a reversal strategy which most people should avoid, but it can be a very good way of getting in very early with very tight stops.

If you really want to see it in action or explore it further, look at futures under a microscope - such as a five minute or fast tick chart - it becomes very obvious what is going on. Combine this with a bit of thought about actual market mechanics and away you go.

Like I say, it's not one for beginners or the faint of heart, because essentially it looks like stepping out in front of an express, and quite often you will be. But the winners will often be vast.

As an aside, it can also be quite a useful concept when determining exit points.

shhh the cats out the bag now....

 

[ChocolateDigestive]

quite lulzy price action around the hourly resistance zone. any break out long guys would have been killed, breakout short guys also killed.

 

[BeginnerJoe]

thanks BJ you cheered me up no end.

Glad to give you much happiness. It would be an error to not consider the fibs while playing S/R. The hare claimed he analysed fibs and found nothing. My research suggests he was blindfolded at the time, or at best blinkered.

EUR looks to have failed at the 1m double top. I am short again. The same fibs level that shook me out is currently at play. I am betting it to fail.

 

[wackypete2]

quite lulzy price action around the hourly resistance zone. any break out long guys would have been killed, breakout short guys also killed.

CD, just my opinion here, but once you have 2 false breaks and retreats then it suggests the zone wasn't a true S/R zone and I leave it alone (or stop trading it if I had 2 losses). In days like that you don't want to keep trying all day and pile up the losses.

My opinion and experience only, nothing I can quantify really.

Peter

 

[wackypete2]

Also, your chart doesn't show a clear direction prior to hitting the zone. How did you determine the zone?

Peter

 

[Shakone]

CD, just my opinion here, but once you have 2 false breaks and retreats then it suggests the zone wasn't a true S/R zone and I leave it alone (or stop trading it if I had 2 losses). In days like that you don't want to keep trying all day and pile up the losses.

My opinion and experience only, nothing I can quantify really.

Peter

Again, just my opinion, but this was going for the daily lows of July 12th/13th, maybe even an attempt to go for the low of July 16th. So the hourly zone had to take a back seat.

 

[wackypete2]

Again, just my opinion, but this was going for the daily lows of July 12th/13th, maybe even an attempt to go for the low of July 16th. So the hourly zone had to take a back seat.

That's why it's often useful to look at a wider time frame chart and get a better perspective.

Good thread, CD

Peter

 

[ChocolateDigestive]

Also, your chart doesn't show a clear direction prior to hitting the zone. How did you determine the zone?

Peter

just by my method, of course drawing previous S/R is subjective. The euro at the moment probably wasn't a great example as price is in the weekend gap at present making the previous S/R zone more subjective with differing feeds etc.

like yourself I prefer to play where there is a clear and unambiguous zone in sight.

 

[ChocolateDigestive]

Again, just my opinion, but this was going for the daily lows of July 12th/13th, maybe even an attempt to go for the low of July 16th. So the hourly zone had to take a back seat.

agreed sir.

 

[BeginnerJoe]

EUR looks to have failed at the 1m double top. I am short again. The same fibs level that shook me out is currently at play. I am betting it to fail.

Nothing doing. Stopped out on a morsel of a profit. Looks like the market wanna play sideways.

 

[rathcoole_exile]

The euro at the moment probably wasn't a great example

the euro vs USD & GBP is currently a perfect example ......if using WEEKLY PPs

 

[VielGeld]

I like waiting until price reaches the blue zone(s) and then look for a failure bounce especially a pullback to the trend. The chart you show is clearly in a downtrend so my preferred play would be to wait for a clear upward bounce and a move back to the blue zone, then I'd look to short.
IMO S/R is one of the simplest ways to trade. Nothing guaranteed of course but very little stress if you keep proper stops and stay with the trend.

Peter

Isn't this a breakout play?

-------

My personal preference for S/R is to see if the level holds for an extended period and look at the shape of it on charts. Very often I've noticed that price "arcs" around strong S/R (no matter the T/F). Then it's just a matter of waiting for the right time to strike.

Anytime price has difficulty going through a level, it catches my attention. Then you wait... and pounce once weakness has asserted itself.

This works well in conjunction with mean reversion. If you look at this week's action in the Euro, then 1.21 would be the mean. Prior to today's strong uptrend, upper end of the mean was 1.215, and lower end 1.205.

I don't think any of this is coincidence.

4h chart to show what I mean:



You can also see the price "arcs" I mentioned. It's especially glaring down there around 1.206 (lol, hindsight). The time then was the Asian session, which implies that mean reversion might have a stronger effect than in other sessions simply because the Asian is more of a follower to EU and US action than a trendsetter.

Anyway, that's how I look at it. :cheesy:

 

[the hare]

The hare claimed he analysed fibs and found nothing.

That isn't what I said at all

I'm not going to repeat myself, Ive discussed this elsewhere.

 

[forker]

like yourself I prefer to play where there is a clear and unambiguous zone in sight.

If you trade pure price action, these represent fantastic opportunities going in the direction and when corrections happen. Refer to the stinger in my thread as an example or even the missus....

 

[VielGeld]

[snip]

My personal preference for S/R is to see if the level holds for an extended period and look at the shape of it on charts. Very often I've noticed that price "arcs" around strong S/R (no matter the T/F). Then it's just a matter of waiting for the right time to strike.

[snip]

And here's a 5m chart for tonight's action on the Euro:



Beautiful arc, eh? Mean reversion at its finest. :cheesy:

 

[Jimmakos]

That's why it's often useful to look at a wider time frame chart and get a better perspective.

Top notch advice there Peter.

Monitoring the wider time frame chart, making decisions direction-wise on my preferred time frame chart and looking for entry points at the shorter time frame chart led to some very high reward/risk trades in the past for me, specifically in stock trading.

Here's an example of trading AU stock:

Using monthly chart to find key support levels and daily chart to decide if there's a good setup, coinciding with the support level. Bullish pattern, plus RSI indicating oversold conditions.

Using 15m chart to initiate the trade.

I'm still long AU...

 

[NVP]

Hi

I thought i would start a new thread on this popular topic and hopefully spark some useful debate.

Forget the instrument and the time frame lets discuss support and resistance.

You can see below a H1 chart of spot EURUSD, time frame doesn't matter, instrument doesn't matter it's just an example. On the chart I have marked a blue area where I believe in the future IF price reaches the blue area price may find support. The chart has candlesticks, this doesnt matter could equally be a line graph.

My understanding from many hours of screentime, is that price is likely to find support at the blue zone, price will then either then break through the support before continuing or rebound before moving away from the zone. Of course price could run all over the blue zone as well and do a combination of both.

I try to think of support and resistance in terms of market psychology. So we know that market participants are likely watching this blue zone. As we approach the blue zone from above there will be people who are already short, those people may look to take profits at the support (those that do think price will come back). Then there are those that are long already and are taking some heat, they might be thinking I am going to hold this and see if we get a bounce, if we don't them I am out. Then we have the third group, perhaps the largest (???) who are flat and they are thinking I am going to wait and see what happens at the blue zone before making a decision on whether to enter.

So it is quite a complex set of human emotions, fear and greed etc that each market participant is experiencing whether they are long, short or flat.

I have been thinking recently about a phenomenon I have noted that price tends to always reach a major previous support and resistance area when close by. It is a little difficult to observe correctly as clearly if something is moving towards something else then the momentum is likely to take price further. Biases are in play.

This is just something I have noted in addition to other strategies I play (which are not the topic of this thread).

My thoughts on the matter were say price is fast approaching a major previous support area. Lets take the situation of the participants again.

(i) the person who is flat - they may well think to themselves, I am just going to wait here and see what happens. i.e. they continue to do nothing.

(ii) the person who is short - they are probably thinking I will take partial or full profits at the support zone.

(iii) the person who is long - they are feeling the heat but maybe they think, I am going to hold this and see if I get a bounce. or they sell and remove liquidity from the bid thus fueling the move down further.

The above 3 participants could have the effect of a status quo in the market a kind of vacuum, this would have the effect of the momentum in the market moving towards the support just being allowed to flow on to the zone. With the majority of the traders who are flat not seeking to enter until the zone is reached this potential activity is not present to turn price around early increasing the likelihood that price will continue on its current path.

Check it out for yourself, pull up any chart, any instrument, any timeframe say H1+ to ensure the most participants are thinking about a future level. Then watch price as it moves towards that level, what I have noticed is that when it gets close it nearly always gets there. - if you get what I am saying

I am wondering if this can be formalised into a strategy, whether it could be made to work.

On the other hand I am probably just talking a load of cobblers.

All thoughts / comments welcome.

Good trading.

PS - This is not a strategy I use I am just musing some ideas.

Good points CD

And if you see key strategic price levels (00's) congruent with the S or R level you are watching - thats even better

N

 

[numbertea]

Nice pick-up Jimmakos. Peter is right for sure in this area I think. The first post of this thread stated that time frames are not part of the equation but I postulate that they are extremely important in regards to S/R levels. I personally use a dynamic data system to create my S/R levels that consider between 1500 and 1200 daily bars to create the levels. As they timeframe moves forward the major supports change. Implementing this has improved my results by 10% in terms of being stopped out with an actual profit. I am only trading breakouts up. Good thread.