Correct support line?

TASK

Member
50 2
How do I know if I've drawn a correct support line? This might sound like a dumb question since you're just drawing a line but is there a certain criteria besides connecting two lows? I have a chart of the S&P 500 daily with a trend line drawn.
2m6uys3.jpg
 

rathcoole_exile

Veteren member
3,924 767
looks okay to me, and if you were to draw a parallel line above the corresponding highs, I believe you'd have a nice, tradeable channel
 

Soloquan

Established member
646 24
The line you have drawn is a trend line which is different to a support line.

If you mean a support line in terms of support and resistance if you take the High + Low + Close /3

The HLC could be daily, weekly, hourly whatever you want it to be. The higher the T/F the stronger the S/R
 

rathcoole_exile

Veteren member
3,924 767
but the trend line acts as Support

Support can be a diagonal or a horizontal

and the parallel side of the channel acts as Resistance
 

PATrader

Junior member
44 2
There is no hard or fast rule to draw support lines. They are just estimation. What you really need to do is just take them as guides and instead, focus more on the price action. Its also best to combine horizontal and trendlines (if there is a trend) for better decision making. Let's say you use only trendlines and you are trading the breakout of trendline. And say if it does break, do you enter? NO! Why? Because you have to see if there are any other critical horizontal support ( or resistance ) lines that price is going to hit next after break out.
 

Mr Woozel

Well-known member
365 8
I may have this completely wrong but I don't have much confidence in support/restistance lines on indexes like S&P 500, FTSE etc. My reasoning is that you cannot directly buy/sell indexes to affect the index values as the values are derived from the companies that make up the index.

For individual companies or Forex I believe support/resistance lines can give an edge as I think lots of other traders are using them to place orders. These orders actually affect the price of the stock or currency
 

PATrader

Junior member
44 2
I may have this completely wrong but I don't have much confidence in support/restistance lines on indexes like S&P 500, FTSE etc. My reasoning is that you cannot directly buy/sell indexes to affect the index values as the values are derived from the companies that make up the index.
Logical reasoning, but i think you should also not be too concerned. If you can see price reversals occurring many times at those levels in the past, then what is there to stop you from taking that as strong S&R? right? :)
 

Mr Woozel

Well-known member
365 8
Logical reasoning, but i think you should also not be too concerned. If you can see price reversals occurring many times at those levels in the past, then what is there to stop you from taking that as strong S&R? right? :)

Because it is just random and not caused by people buying and selling at the level
 

bbmac

Veteren member
3,584 788
I always understood trend lines to be lines joining at least 2 fractal swing hi's or lo's, but peoples' interpretation of TA and it's concepts have '*******ised' the original concepts - so it seems anything goes these days.

G/L
 
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PATrader

Junior member
44 2
Because it is just random and not caused by people buying and selling at the level
. No its not. If its not caused by buying or selling , why do you think you can see the price bouncing back and forth on these levels? :)
 

glyder

Established member
753 93
TASK, I think its drawn OK. Personally I’d call it a shorter term support line rather than trend line, unless it can be extended further back to previous higher lows (partly TF dependent I suppose).
But however you call it, the important thing is trading plan, what does price
tell you when it is next at the line? is it bouncing off for another buy or breaking down, signifying the end of a pullback ?
 

glyder

Established member
753 93
TASK, I think its drawn quite OK. Personally I’d call it a shorter term support line rather than trend line, unless it can be extended further back to previous higher lows (partly TF dependent I suppose).
But however you call it, the important thing is trading plan, what does price
tell you when it is next at the line? is it bouncing off for another buy or breaking down, signifying the end of a pullback ?
 

Mr Woozel

Well-known member
365 8
. No its not. If its not caused by buying or selling , why do you think you can see the price bouncing back and forth on these levels? :)

Because it is random.

Just like some of the pyramids in Egypt line up with certain constellations. Some guy wrote a book about it trying to explain the reason why but someone else showed it is just random. Similar thing with "The Bible Code".

What is your explanation for it?
 

PATrader

Junior member
44 2
What is your explanation for it?
Pardon me, but my thinking is not that complex. I am a simpleton so i can only understand simple and common sense stuff. What you see on your chart is price. They are my best friend. That's all I care about :)
 

DM86

Junior member
15 0
Because it is just random and not caused by people buying and selling at the level

Hi, I'm sorry if I've misunderstood you but I don't think Indexes are just random. You can buy and sell indexes, they are not only influenced by the companies within.
The company prices can be influenced by the price of the index and vice versa.

So S/R levels would play as much a part when trading an Index as anything else as Indexes are bought and sold...
 
 
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