How to identify support and resistance

[matinthehat]

When i try to figure out which price levels/zones are have been important support and resistance in the past, i end up drawing a line at every single price on the chart. The same thing happens when i am looking at volume at price to find the s/r levels. I tried plotting the extremes of price ranges, but i still had lines drawn at almost every single price. Those who are successfully trading support and resistance, how do you define important levels of support and resistance on your charts?

 

[tomorton]

Its not something I devote a lot of time to personally, but I have found the daily YouTube videos by InTheMoneyStocks.com cover these things very well. They also have athread here I think with daily analysis. They mostly cover the S&P, Oil, the USD, some bellwether US stocks - but even if you trade elsewhere the TA is the same whatever chart you're working on.

 

[Black Swan]

When i try to figure out which price levels/zones are have been important support and resistance in the past, i end up drawing a line at every single price on the chart. The same thing happens when i am looking at volume at price to find the s/r levels. I tried plotting the extremes of price ranges, but i still had lines drawn at almost every single price. Those who are successfully trading support and resistance, how do you define important levels of support and resistance on your charts?

If you have certain chart packages, such as pro real time, it'll draw levels of support and resistance for you, together with the associated pivot points...

 

[Mike Broudy]

As a general rule, you can typically apply more weight to round numbers. Also be aware of previous support acting as resistance and previous resistance acting as support once each of these has been breached, respective to their situation.

In Technical Analysis of Stock Trends, Edwards and Magee explain the misconception that most people have with S&R. For example if a stock XYZ advances to 25, falls to 22, then advances to 29, most people will assume that 22 is the support level because that was the last price which XYZ was supported to reverse its trend. However, Edwards and Magee would define 25 as the most likely support level.

 

[shadowninja]

The problem is that it doesn't just advance to 25 then fall to 22 then advance to 29. A more likely route is 20, 23, 21, 22, 21, 24, 23, 25, 24, 25, 22, 24, 23, 26, 24, 27, 26, 28, 27, 29... and so the OPer has 400 support/res lines.

 

[cedricthefrog]

my computer does this better than my eye.

Consider what resistance is and it's relation to OHLC. Would you say that areas of resistance are where you find large amounts of bar highs together on the time series? and what about support and it's relation to bar lows.

I find trendlines are too arbitrary for accurate trading but a lot of people use them successfully. Skin...cat.

 

[nine]

When i try to figure out which price levels/zones are have been important support and resistance in the past, i end up drawing a line at every single price on the chart. The same thing happens when i am looking at volume at price to find the s/r levels. I tried plotting the extremes of price ranges, but i still had lines drawn at almost every single price. Those who are successfully trading support and resistance, how do you define important levels of support and resistance on your charts?

A traditional and effective approach is to step out of the noise.

If you're trading 5m charts and get too many lines then try 15m or 60m charts. If you are trading on 60m then try 240m or daily charts.

The bigger the timeframe you can see it on the better. That means more people see it and it is thus, more important. The other thing is to look for zones/lines where it is both support and resistance. Or perhaps that it it touched, like a trend line, no less than three times.

The final trick is to realize that S&R lines are actually zones ... not lines at all so maybe you need to use fat lines.

All of these things work for some - now figure out what works for you.

 

[rathcoole_exile]

along the lines of Mr.9 above, for most of the instruments I trade, I just plot the Weekly Pivots on my charts, and then sit back and wait until if/when any one of them are hit

 

[nine]

An example of S becomes R, multiple touches, its really a zone not a line.

Basically remember that Support is a bunch of people/machines willing to place buy orders and live with them. And the keener they are the higher above support they'll start buying (so maybe you don't reach it) or if doubtful or suspecting everyone else might be doubtful the later they'll start buying. So it's fuzzy and its conditioned by market activity and expectations.

 

[PadderFX]

There's an MT4 indicator that plots SR and pivots automatically, the one I used before seemed pretty good.

 

[msheylla]

I agree with nine: A traditional and effective approach is to step out of the noise. Market profile is very good for S&R but I am just exploring this.

You probably already google it, but:
Support & Resistance Basics by Casey Murphy is a good start in investopedia www.investopedia.com/articles/technical/061801.asp
i also found this very good article in digg: "Swings, Waves, Support & Resistance Levels, Trendlines" (www.gourmetrader.com/collection/three-swing-waves-support-resistance-levels-sr-zones-and-trendlines).

In any case if you or anybody have other readings to recommend on S/R

MSH

 

[pmccandless]

Some good points in here, but to get rid of so many lines you're going to have to switch to a larger timeframe like rathcoole and nine said. This is a difficult thing to go over cuz it's not just about drawing lines at every single area where price reversed a little bit. You need to think about context and if there's enough profit margin to justify your risk, etc. I was in the same boat as you last year man. It just takes a lot of time, homework, and experience. You'll get there.

I have some videos showing where i draw s/r lines to take trades. Links are below.

Good luck

 

[pmccandless]

Oh and a good person to look up for this topic is Sam Seiden.

 

[alphachaser300]

I've been playing round with an automatic TA system called Autochartist of late. Am more into fundamentals myself but it's got the ability to at least help show the emerging support and resistance levels but it seems to look only at the very short term (unless I'm doing something wrong...)

 

[dick_dastardly]

how do you define important levels of support and resistance on your charts?

As a general rule, you can typically apply more weight to round numbers.

matinthehat, you might try this little exercise.

Get a historical chart up on screen, find a way of covering up or eliminating grid lines and the scale at the side(s), then see if you can pick out the levels of the round numbers simply by looking at the price action.


dd

 

[William Waller]

Some good replies from Nine and others.

Remember this is an art not a science, but as a very easy way to start:

Mark all major round numbers (every 500 pips forex, every $5 gold and oil, etc).

These will mostly be price pivot zones (where support turns into resistance and vice versa) because these are the main battle lines on your chart.

S/R are (just my opinion) the best tools a trader has available but like all other tools they must be used correctly. Try demoing just taking good price action off major round numbers only. You will be amazed.

 

[RockyRacoon]

Nine had the clearest reply IMTO. I call important levels "areas" - but "zones" says the same thing.

I start with the longer time frames and work my way down.

See how the 15 minute chart levels are based on the weekly chart - the weekly levels are called long term S/R levels and grow in strength over time.

 

[Phoenix01]

The people here who trade support and resistance zones, how do you determine if price will actually move away once it has hit it. Currently the only thing that works for me are candles, which work perfectly sometimes and other times completely fail.