Support and Resistance lines

Hello Guys

Firstly I'd like to thank all the people who've shared their knowledge on the site, its been an incredible help. After far too much back testing I seem to coming near to a system that wins 50% of the time and is up a twice as much as it loses. (I'm aware that actually trading it will be a whole new kettle of fish though :) ) It basically uses moving averages, MACD and Pivot lines (based on the previous day). I've been looking at incorporating supportant and resistance lines over many days not just the previous day. Does anyone know of anyway of calculating S/R lines over days / weeks without having to have the graphs to draw on. IE is there a formula like that used to calculate the daily pivot.

Thanks guys I hope to be able to return the favour some day.

Cheers
 

options

Senior member
Just take the high/low over however many days you want and use Neil's link for the pivot calulator. (the one under this post on the front page.)

Usefull to remember as well that there is nothing new in this game. It's all been done before.

Whatever tracking system you use, as you have found in backtesting, works... Until you come to use it for real. Then you find that it's you that doesn't work as you fall prey to the faking and the insecurity.

Have fun, and good fortune.

Options.
 

ChartMan

Legendary member
There's nothing like a charting package to discover SR trendlines. You will find that they are all over the place. Some more important, some less so. Recognising top and bottom patterns is also very important. It will help you maximise gains and minimise losses. Good luch and play small when you start. There's no heros in this battle.
 
Breakouts

Thanks for all the help

I've been looking at Pivot lines and as was suggested - yesterdays high and low. I have been amazed at how poignant those lines are. It seems that rather than acting like a fixed line the S/R lines are more elastic as price may go through, but may then be 'twanged' back.

I'm aware that volume can play an important role in predicting whether a price will break rather than bouncing. Are there any more rules or guides that could help predict breakouts or bounce offs?

Kind regards
 
Use Fibonacci retacements & expansion analysis

Dear Colleague,

You may Use Fibonacci retacements levels to identify key sup & res levels and fib expansion levels for price projections.

The ratios used buy the big boyz are:

1st retracement = .382
2nd retracement = .618

1sr price objective = .618
2nd price objective = 1.0
3rd price objective = 1.618

Hope this help
Trader-feel
 

sifts2win

Member
Traderbtf,
what is a fib expansion level? I know about retracements - 38,50,62,78. Also can u help with advanced fib levels please ?
Thanks
 

FTSE Beater

Experienced member
Hi Sifts2win

The expanision Fib levels are the ones beyond the retracements. Say a price goes from 50 to 100 and then back down to 50 - that is a 100% retracement. If it goes below 50 then it is into expanision Fib levels. The next one being a 161% retracement.

I've never managed to get them to work, but some people can.

HTH
 
"Traderbtf,
what is a fib expansion level? I know about retracements - 38,50,62,78. Also can u help with advanced fib levels please ?
Thanks"

Dear friend,

A fib expansion level is a price objective point dertemine by the RIGHT application of the mathmatics relating to the fib expansion theory to determin where the price will possibly be in the future in line with the current market movement/Direction.

The retracement level tells you @ which point the market may go if it move against the current movement/Direction.

The Fibb theory should alway be used in conjonction with some other powerful tools for a better performance

You'll need to seach the net fore more info cause all I've got are books which I can't post on this chat room. Hope this helps and don't hesitate to come back to me.

Keep on trying
Best regards
Traderbtf
 

wallmann

Junior member
Support, Resistance & 20-day moving average line

One of the things we hear everyone talk about is support and resistance levels and they have been ingrained in people over the past several years. But there are approximately 35 other "technical indicators" that are used, from moving averages, simple moving averages, exponential moving averages, stochastics, bollinger bands, DMI, Relative strength, you name it, it's out there.

So, in this kind of environment, how good are these indicators? Well, simple supports will always be important, as will moving averages. But if you follow some of the other indicators, you may see that they aren't really in step with the market. You may see some stocks move several dollars, but interestingly the stochastics on the biggest movers didn't indicate anything was coming. Nor did the money flow, nor just about anything else.

What does that mean? It means that if the market was "healthy" we would indeed see a lot of these indicators give us a clue as to what may happen in the near future. But, when you are locked in a raging bear market, we have to whittle down the indicators to a handful of the most useful ones. That would be actual support and resistance lines from near term levels, and the "moving averages". In fact, the moving averages are probably
what the street looks at more than anything right now.

Moving averages come in a bunch of flavors. These is a 10 day simple moving average, a 20 day, a 30 day, a 50 day, 100 day, 200 day, etc. Likewise the exponential moving averages come in just as many flavors.

So, why are these important? What is the market looking at with these? Well suppose you are a money manager and you are trying to decide if you should be buying or selling a stock. Let's say that the 20 day moving average is at the 22 dollar level, but the stock is trading at 24.50. That would indicate to you that the stock is "up" above where it should be according to the "moving average". It may be wiser for that stock to "come in a bit" before you attempt buying it.

Likewise, if a stock has been bouncing off it's 20 day moving average and moving higher each time it touches it, chances are better that fundies will look at that and say "hey, let's buy this stock for the bounce". So, as you can see moving averages are indeed important even in a bear market.

Now, the best of both worlds is to find stocks that are approaching a "pricing level" where they have resistance, along with that price level coinciding with a moving average. For instance. let's say the 10 day moving average on XYZ is 12.50 and it has been trading below 12.50 for a few days. We also see that 12.50 has a significant line of resistance from about two months ago. What do you suppose will happen if XYZ can indeed get up and over that 12.50 level? It could explode higher for a day or more.

When you can get a significant price level to coincide with a moving average for either support or resistance, you are increasing your chances of success big time. We especially like to see moving average lines, coincide with a price support level. In a falling market, a combination of both of those increases you chances of a decent bounce higher by about 80%. Keep an eye on the 10, 20, 50 and 200 day moving averages folks. You will be surprised to see how often those averages mean a move one way or the other to the stock.
 

sgrech

Junior member
Good post, Wallmann.

So how do you determine what is the most appropriate moving average to use? Do you add each of these moving average to the relevant chart and see which one fits best. Also do you use EMA ro SMA's?

Simon

p.s. Great site, much better the Motley Fool, which is what I was looking at until recently.
 

sifts2win

Member
Belated thanks everyone,

just picked up the thread, will have a look and learn !
Off to the pub now - Sunday Lunch beckons !!
Cheers !
 

kent

Junior member
Afternoon all!

Query re. Pivots on front page, Are they updating? Dow. seems to be as yesterday.
Great site, thanks Sharky and to all the regular contributors and all the not so regular one`s !

Ken. T.
 

NickW

Junior member
Pivots points are meaningless unless the instrument is pitt traded.

Checkout VWAP focal points instead. Use a deviation band around the VWAP point to determine support & resistance zones. This is the idea behind value areas a.k.a. market profile.
 

Henry

Active member
I find pivot points work great on EuroStoxx and ES. As long as enough people use them, I think they will work - mass market psychology thing.

H.
 
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Trader333

Moderator
Pivot Points

Hi Henry,

I use pivot points and they work around 50% of the time on the way I use them and as my reward to risk ratio is 2:1 then it is profitable for me. Could you explain why "More people using them would make them work better" as I cannot see why that would be the case unless for example, on a pivot high you get people deliberately using pivot points to be a resistance level and shorting when others deliberately use the same pivot point to go long ?

Thanks


Paul
 

Henry

Active member
I think that like any type of support and resistance, they need enough people to "believe" in them. So if for example 30% of the people trading a market have this list of magic pivot numbers in front of them, and they naturally get cautious as the price approaches them, the price will react accordingly. Kind of self-fulfiling prophecy.

H.
 
Pivots

I agree,

Pivots can be excellent. I'm amazed sometimes how accurately the markets bounce off them. I also have found them to work 50% of the time. I've been playing around with this, but still cant seem to find any way predicting if it will bounce off or go through. One thing I have noticed is that the first line of the day is very important (be it a pivot or R/S 1/2), though I've not been able to any consistent findings on this to form a trading strategy. Any thoughts.

Totally agree about it being market Psychology. Excuse my naivety but do you think the big market players know which lines they will buy / sell (bounce off?) way before the market approaches it. Like I said I've found there's a bounce off 50% of the time. Are there any signs to go off as the market approaches a pivot line that would indicate what the market makers are thinking?.

NickW could you shed any more light on VWAP focal points? - never heard of them, Cheers and many thanks

Dave
 

NickW

Junior member
A coin flip also has 50% winners! :)

Look at how Trin, Tick, Vix, key stocks in the index and the relative performance of the Nasdaq vs S&P & Dow are behaving as the s&r points are approached. Once you know how to read these you improve the odds dramtically in your favour.

Understand where you are with respect to the value area, opening range and previous close, current days 1st hour hi/lo, previous days last 2hr hi & lo and day hi, lo.

VWAP is volume weighted average price. The VWAP focal point is the average of price x volume for every tick traded for the previous day. Value area is a zone either side of the focal point. The intraday moving VWAP is another tool once the market is open.

On a perfectly balanced day the floor traders pivot point (H+L+C)/3 might coincide with the VWAP. MarketMakers use VWAP to determine neutral price areas - move to far away (without the other indicators on your side) and prices will likely be corrected.

If the market holds outside the value area that indicates the market is taking on a more bulllish/bearish tone.

Use all these ideas together to judge how prices will react at the next S&R point. Will it bounce - pass through and fizzle back or pass through strongly and change over from support to resistance.

There's no such thing as a free lunch, making trading decisions on the basis of an average of 3 numbers from the previous day will loose you money. You may as well write me a cheque now! :cool:

Good luck in your trading.

Nick
 
 
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