Best Thread Support & Resistance Explained

bbmac

Veteren member
3,584 787
re: Support & Resistance Explained

Look at the 4hr gbousd chart below...a previuous fractal swing hi zone x 3...ie clearly strong resistance before the break to the upside, which when tested by a pullback from the topside found fresh demand...ie resistance became support (RBS)...Can we drop down a t/f or so and find a set-up / price action that tells us that the greater probability was that price would rise from this zone howsoever temporary in what was a decisive break in an uptrend? Well yes, and one could do so in the knowledge that trends advance and pullback-such is the nature of trends.

Just one example, but it illustrates the point about potential support/resistance...that it is a tool in our technical armoury that can with the right set-up/price action suggest that there is a greater probability of a one thing over another from the zone/factors identified.



G/L
 

spreader_legger

Well-known member
447 38
re: Support & Resistance Explained

When watching a random game such as Deal or no Deal (which I have the misfortune of watching sometimes :eek:) you will find obvious trends as far as revelation of red or blue boxes are concerned .... naturally this does not mean that we would be any more likely to know when the trend will stop or even begin.

I believe they conducted tests on the market & they found that it does not necessarily follow a normal distribution or Gaussian pattern (statisticians out there plz help me out!) The tails in the distribution are slightly fatter & consequently the trends more pronounced.

I know this is slightly off topic as far as S/R is specifically concerned, but perhaps an interesting addendum to Scotty2Cues Coin flipping experiment


Initially, I wasn't sure about S&R and thought fibs were just crazy. Then someone explained the reason why they may possibly 'work'; it's because alot of other traders are using them and thinking the same. Im ALOT more skeptical on S&R, fibs when it comes to things such as FTSE etc than I am in Forex. I also wouldnt use fibs by themselves, they need to line up with S&R.

Attached is a random walk chart (coin flips). I can see S&R that would 'work' on there but its all just totally random....

Has S&R or fibs ever been statistically tested to see if the actually do 'work'?
 

Scotty2Cues

Established member
737 33
re: Support & Resistance Explained

When watching a random game such as Deal or no Deal (which I have the misfortune of watching sometimes :eek:) you will find obvious trends as far as revelation of red or blue boxes are concerned .... naturally this does not mean that we would be any more likely to know when the trend will stop or even begin.

I believe they conducted tests on the market & they found that it does not necessarily follow a normal distribution or Gaussian pattern (statisticians out there plz help me out!) The tails in the distribution are slightly fatter & consequently the trends more pronounced.

I know this is slightly off topic as far as S/R is specifically concerned, but perhaps an interesting addendum to Scotty2Cues Coin flipping experiment
I thought just about all the academics think the markets are random. Isn't the Black-Sholes formula based on randomness or some kind of Brownian motion?

I have some faith in S&R in Forex as its mainly a speculators market and Ive read the big players use S&R. Im guessing something like FTSE is not a speculators market as its a combination of stocks and so the S&R is more random.
 
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SanMiguel

Experienced member
1,135 25
re: Support & Resistance Explained

Im guessing something like FTSE is not a speculators market as its a combination of stocks and so the S&R is more random.
You'd think so wouldn't you but surprisingly not especially with the introduction of ETFs that buy a little of everything.
500 companies in the S&P and yet the levels still work.
 

spreader_legger

Well-known member
447 38
re: Support & Resistance Explained

To say that most academics believe in something does not necessarily make it so. The efficiency market hypothesis, which assumes all information is already priced in & participants have perfect information is an unrealisitic assumption IMHO (this would otherwise make arbing very difficult to accomplish).

Indeed George Soros in recent communications suggested that markets are imperfect and prone to bubbles .... the notion that everything trends towards equilibrium is plainly wrong. Rather than being purely driven by random events, the markets are also driven by the human emotions of greed and fear


I thought just about all the academics think the markets are random. Isn't the Black-Sholes formula based on randomness or some kind of Brownian motion?

I have some in S&R in Forex as its mainly a speculators market and Ive read the big players use S&R. Im guessing something like FTSE is not a speculators market as its a combination of stocks and so the S&R is more random.
 

Splitlink

Legendary member
10,850 1,232
re: Support & Resistance Explained

I have some in S&R in Forex as its mainly a speculators market and Ive read the big players use S&R. Im guessing something like FTSE is not a speculators market as its a combination of stocks and so the S&R is more random.
I'm trying to get my brain around this comment. Speculation is the art of buying cheaply with the buyers wisdom and experience that the market will rise---or the reverse---. Why would Footsie not be a speculators market, but Forex yes?

I think that we need to go back to the basics. If a country has strong exports it's shares will rise. The Footsie is a capitalisation index and the weakest of the 100 will be relegated-- this works like the football league-- this means that the strongest 100 stocks are always going to ensure the movement of the index, for better or worse.

In the currency markets if Footsie goes up, the GBP will too. This is because the GBP has to be bought to buy British goods. The two are tied and if the economy falls, the GBP will fall. The amount it rises falls or rises will depend on the strength of the currency that it is paired with.

I cannot see how randomness can be associated with one and not the other.
 
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Splitlink

Legendary member
10,850 1,232
re: Support & Resistance Explained

To say that most academics believe in something does not necessarily make it so. The efficiency market hypothesis, which assumes all information is already priced in & participants have perfect information is an unrealisitic assumption IMHO (this would otherwise make arbing very difficult to accomplish).

Indeed George Soros in recent communications suggested that markets are imperfect and prone to bubbles .... the notion that everything trends towards equilibrium is plainly wrong. Rather than being purely driven by random events, the markets are also driven by the human emotions of greed and fear
Just a minute. Do you mean that because George Soros said that, markets do not trend towards equilibrium? I should suggest that they do and recent examples of bubbles have proved that.
 

spreader_legger

Well-known member
447 38
re: Support & Resistance Explained

Sure, once bubbles burst, markets may revert back .... In actual fact fear could push markets below what many more level headed would consider Fair market value.

I think what Soros meant was that markets will be pushed away from equilibrium for extended periods of time due to man's over exuberance (sorry, didn't mean to bring back the ghost of Greenspan :p)






Just a minute. Do you mean that because George Soros said that, markets do not trend towards equilibrium? I should suggest that they do and recent examples of bubbles have proved that.
 

FX Bandit

Established member
530 95
re: Support & Resistance Explained

Another factor in determining support and resistance is the stochastic on the 4 hourly and trend direction.If trend is up and stochastic is up,future support and resistance areas will be higher .A trader should also gauge the market sentiment and apply it to s/r.
This deserves a prize. A new, special prize for BIGGEST LOAD OF TOTAL AND UTTER BULLSH1T EVER SEEN ON THE INTERNET OR ANYWHERE ELSE FOR THAT MATTER.

You think that there would be a lot of competition for such a prize? Of course, but that post is miles ahead of the pack.
 
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Scotty2Cues

Established member
737 33
re: Support & Resistance Explained

I'm trying to get my brain around this comment. Speculation is the art of buying cheaply with the buyers wisdom and experience that the market will rise---or the reverse---. Why would Footsie not be a speculators market, but Forex yes?

I think that we need to go back to the basics. If a country has strong exports it's shares will rise. The Footsie is a capitalisation index and the weakest of the 100 will be relegated-- this works like the football league-- this means that the strongest 100 stocks are always going to ensure the movement of the index, for better or worse.

In the currency markets if Footsie goes up, the GBP will too. This is because the GBP has to be bought to buy British goods. The two are tied and if the economy falls, the GBP will fall. The amount it rises falls or rises will depend on the strength of the currency that it is paired with.
I cannot see how randomness can be associated with one and not the other.
I may have this wrong, Im certainly not an expert but the FTSE is a combination of companies. Traders buy and sell shares in those companies, so the FTSE is a combination of that. Therefore traders dont buy or sell based on S&R in the FTSE, although they may use S&R when using the companies chart. So really S&R doesnt exist on FTSE in the sense that traders are trying to overcome those levels, they are just random

In Forex however, 90% is speculation and the exchange of currency due to trade in goods or investing in a country etc is a very small part. The speculators drive the market so the big banks and hedge funds are all watching those S&R levels and trades are placed based on them and so S&R is more reliable in Forex
 

FX Bandit

Established member
530 95
re: Support & Resistance Explained

Another factor in determining support and resistance is the stochastic on the 4 hourly and trend direction.If trend is up and stochastic is up,future support and resistance areas will be higher .A trader should also gauge the market sentiment and apply it to s/r.
Reading this post, it suddenly makes sense to me how that Rothschild had to go mad and leave.

I read it once. I read it twice to make sure. I read it thrice for my brain still refused to believe what my eyes saw.

Three brief readings, that is all. But now I am completely buried in bullsh1t. More bullsh1t than I could ever have imagined could exist in one place. THIS HEAP OF BULLSH1T IS SO LARGE IT IS THREATENING TO ALTER THE AXIS OF THE EARTH.
 

Scotty2Cues

Established member
737 33
re: Support & Resistance Explained

In the currency markets if Footsie goes up, the GBP will too. This is because the GBP has to be bought to buy British goods. The two are tied and if the economy falls, the GBP will fall. The amount it rises falls or rises will depend on the strength of the currency that it is paired with.

I cannot see how randomness can be associated with one and not the other.
I didnt think FTSE and GBP have much of a correlation. Just because FTSE goes up, it doesnt mean currencies are being sold to buy pounds
 

DionysusToast

Legendary member
5,963 1,498
re: Support & Resistance Explained

Some good stuff on here so far but mostly it's about the interpretation of charts and some details on how to use Support & Resistance.

This is moving away from where I'd hoped it would go which was :

The specific thing I would like to discuss about support & resistance is WHY it works when it works. I guess we could also discuss WHY it doesn't work when it fails.
Shakone's reply was interesting and was more to the point and not a wild generalisation.

There do exist some generalisations as to why S&R works as provided by PS...

As requested - from your Thread Wall St = Minus Sum Game Post 229 (just insert S/R for TA):

TA works because of the following reasons -
Charts are visual representations of traders / crowds / human psychology acting in the markets. Traders have memories, and so remember previous price levels where price stalled or where there was plenty of overhead supply or demand ie support / resistance etc.

TA reflects human and crowd behaviour

Self-fulfilling prophesy - if everyone is looking at the same thing on their charts eg a resistance level...and the chart indicates that price tend to stall or reverse at this level , then it is more likely that different traders will look to exit longs at this level, and / or there will be a lack of buyers at this level.....and this is where confluence also comes in - the more factors which indicate the same thing, the more traders will act on it, increasing the self-fulfilling aspect
Now - I can buy the 'traders have memories' to an extent. The problem is with any obvious edge (such as seasonal edges that used to exist) is that the more people know, the more people try to jump ahead of the other people that know. This will occur through necessity. So - let's say it was discovered that you could buy on Friday, sell on Monday and have a 70% win rate with a co-equal stop & target. If this became well known, lot's of people would buy on Friday, then because of all that buying on Friday, it would become necessary to buy on Thursday because of the new swing up in prices on Friday in anticipation of the Monday rise. Then you'd need to buy on Wednesday, Tuesday, Monday until - no edge.

Obviously, if the concept of S&R is limited to a fairly small audience, then there's no reason to think it'd be edged out.

In terms of self-fulfilling, the ability for S&R to be self-fulfilling will differ by market and timeframe, hence my request for people to discuss those markets in which we have expertise.

In my opinion, the idea of the forex market being pushed around short term in the same way that the US index futures do seems far-fetched. The sheer amount of money needed to do this is massive. In forex there is a trillion dollars daily on the spot market, 362 billion dollars daily in outright forwards, 1.7 trillion dollars in swaps. Add to this that the market most retail players use does not impact these markets as they are trading against their broker.

So - perhaps we should first deal with forex. We know the players to an extent. Does anyone have any clue what the participants may/may not be doing at the point it comes to S/R. We know that retailers aren't moving the market. Who does then ? Or maybe no-one does at all...
 

Scotty2Cues

Established member
737 33
re: Support & Resistance Explained

In my opinion, the idea of the forex market being pushed around short term in the same way that the US index futures do seems far-fetched. The sheer amount of money needed to do this is massive. In forex there is a trillion dollars daily on the spot market, 362 billion dollars daily in outright forwards, 1.7 trillion dollars in swaps. Add to this that the market most retail players use does not impact these markets as they are trading against their broker.

So - perhaps we should first deal with forex. We know the players to an extent. Does anyone have any clue what the participants may/may not be doing at the point it comes to S/R. We know that retailers aren't moving the market. Who does then ? Or maybe no-one does at all...
Look at EUR/USD or GBP/USD before a data release or important speech, the market is usually quiet but can sky rocket or plunge after its been digested. All the speculators are causing it.
 

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