For a practical example, example, I've attached a chart which may help illustrate this S/R business. There are dozens o swin! points in this chart, thousands with a shorter bar interval, but these are enou!h or the illustration. "ote at # that price reverses. $ou don't %now why. &oesn't matter. ut it reverses, ma%in! a swin! point. It's not support. "ot yet. (ust a reversal due to chan!es in the balance between buyin! pressure and sellin! pressure. )t *, however, this level now becomes support. &itto or + and re resistance. -hen this R is penetrated, a new swin! point is created at , thou!h it's not yet R it's 0ust a swin! point. )t 1, that old R level is tested and now becomes S. -hen price bal%s at 2, that level now becomes R.
There are maxims that we come to believe as thou!h they were principles, or even laws, thou!h they barely 3ualiy as !uidelines. For example, S once breached becomes R, and vice4versa. uy S, sell R. The more a !iven level is tested, the stron!er it is. i! volume on brea%outs or brea%downs is !ood 5assumin! you're on the correct side o the trade6. )nd so on. 7owever, in order to determine whether or not any o this is true, one has to !o bac% to the point where these old reliables !ained currency. That could ta%e a !reat deal o time, however, and probably wouldn't be o much interest, much less practical use. So or now, perhaps we could settle on the concept that S and R represent those levels at which one can expect to ind proitable trades. 8nortunately, it's next to impossible
to determine in real time whether those proits are to be ound on the short side or the lon! side. The idea that S, or example, becomes stron!er the more it's tested does not bear close scrutiny. In act, i S has been tested twice and price returns there yet a!ain, sellers assume that there's a reason and they prepare to short that return. Some have created yet another maxim 44 Third Time's The 9harm 44 but this doesn't stand up under close scrutiny either. )s with everythin! else, it 0ust depends. So what does one do at these so4called S/R levels: )s ;ar% &ou!las counsels,
$ou've done a nice 0ob o locatin! most o the potential and realized levels and zones o S/R, but you're as%in! the wron! 3uestion. I you trade the lon! side, you're !oin! to want to enter at or near a point at which the downtrend turns and becomes an uptrend. In order to do that, you're !oin! to have to determine what constitutes a trend, what constitutes an uptrend and a downtrend, how to determine trend stren!th, how to determine trend chan!e, how to determine trend reversal. =nce you've done all that 5which is much simpler than it sounds i you can draw a strai!ht line6, then you have to determine what your ris% tolerance is, and many people can't do that, unortunately, until they've be!un tradin! with real money. ut, assumin! that you're a!!ressive, you'd want to enter at the irst indication o trend reversal. $ou would not wait or conirmation. )s or stop placement, it helps to have a very clear distinction in mind between a!!ressiveness and rec%lessness. =n the other hand, i you're more conservative, then you'll want to wait or some sort o conirmation, such as a hi!her low. =nce you've decided all that, then you !o over your charts and you ind those ranted that i you received many replies, you mi!ht be able to !et a sense o the !estalt o S/R, trend, demand/supply and so on and proceed rom there, but it's hi!hly unli%ely that you would !et enou!h replies to your 3uestion to do so. Instead, you mi!ht !et at most one or two, and instead o conductin! your own investi!ation, you'd test somebody else's assertions, which is pretty much the same thin! as tradin! somebody else's strate!y. Thereore, !o bac% to your chart and ind those levels or zones which loo% to you to be the most propitious levels or zones to enter, then i!ure out how you would do so in real time. Then you can be!in developin! some criteria or yoursel.
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Originally Posted by DDI I look at daily and weekly charts and go with the trend, but in fx and futures where my trades can last from 30 mins to a few days, that's where i have a roblem! "or examle, sometimes if the #$ min chart shows reversal, to go with daily chart trend, I find that the %0 min &or (0 min) are contradicting! *nyway the roblem I have is not restricted to indicators alone &sub+ect of thread) but technical analysis as a whole!
-hether one TF
S/R are not points where demand overwhelms supply or vice4versa. They are rather points or levels or zones at which the movement o price might be aected due to the act that price was aected there earlier by demand overwhelmin! supply or vice4 versa. In other words, a swin! hi!h occurs because supply overwhelms demand, at least or the time bein!, but one cannot assume that a swin! hi!h is !oin! to act as resistance simply because it's a swin! hi!h. It must also act as resistance in order to be resistance. I it doesn't, then it isn't. )!ain, this is not to say that hi!hs, lows, round numbers are not potential S/R. ut they are not actual S/R until they actually provide S or R.
There can't be a buy without a sell. -hat moves price is not buyers but demand. I buyers aren't willin! to pay what sellers want, then sellers have to drop their price. =therwise, no trade ta%es place.
S/R are ound where important buyin!/sellin! have ta%en place, important enou!h to have turned price. Thereore, the irst place to loo% or S/R are those price points and/or price levels. )nythin! else is a representation, and that representation may have nothin! to do with the reality.
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Originally Posted by bracke What is considered 'important buying and selling' and how do I find them. Are you able to give me examples please.
Important support and resistance levels can be ound at those levels or zones in which a relatively lar!e number o trades too% place. These trades need not have occurred on only one occasion. In a base, or example, when
;any trades can also occur in a broader ran!e over a period o time which may be shorter or lon!er than an accumulative base. For example, i a !iven level is hit repeatedly and price is
y the way, don't !et your head stuc% in the trees. Important S/R can be ound at the B&7, B&9 and B&C, particularly i you open within the B& ran!e. So bac% o and loo% at the orest@ days, wee%s, even months 5note that the "&D has been indin! S at a line stretchin! bac% to last &ecember6. There's no one4size4its4all answer. S/R are where traders expect to ind trades, i.e., activity, so the B&7 and B&C are the irst places to loo% i price opens within the B&R. 7owever, there mi!ht be somethin! special about the day, such as that price spent the entire aternoon the prv day in a ti!ht ran!e. In that case, the entire ran!e becomes
potential S or R 5-ednesday, or example, the "? spent three hours between #+1 and #+ Thursday aternoon, it ound S at #+16. =r the B&C or B&7 may ali!n with S/R that !o bac% urther than the B&. So, aside rom the B&7 and B&C, where is price repeatedly bein! turned bac%: Remember this isn't about lines and points and mechanical deinitions it's about traders and the trades they've made. I brea%in! S, or example, means that a lot o traders are !oin! to be underwater, it's probably !oin! to be important. I not, probably not. 7ow important is ten4year4old S:
Swing points provide a form of support and resistance, yes, but it's somewhat different from the support and resistance provided by zones. The "resistance" provided by points, particularly if they are isolated, is provided primarily by the inability of the trader to f ind a trade (which, after all, is the business of the trader). There's nothing going on up there, or down there, so price returns bac to an area where these trades can be found, which is where the "value area" comes from. !n a formation, price never stays anywhere long enough to provide these zones, and one is e#ually liely to find a trade at point $ as point % or & or any other point. Since the S has reached that top zone twice now, the resistance it provides is a bit more formidable than a single point. %ut whether we mae a trip all the way down to the bottom is anybody's guess. !f you'll loo closely at this particular chart, what appears to be a has some of those value areas or consolidations within it. * was spent going more or less sideways, then the first half of +, then the second half of that year, then a little more than half of . ach of these represents a potential waystation. -e're at the first of them now. ! thin ! used the term "potential clima". -hat appears to be a potential clima and turns out not to be T/ clima is considered "preliminary support". - didn't now at the time whether the selling clmaes were in fact selling climaes until they were tested. 0ather he went with what was in front of him and stayed open. %ut an omnibus answer to your #uestions may be that the best trades are found at the etremes. Therefore, you wait for the etremes. ! read somewhere recently 11 and can't remember where 11 having to do with 23, ! believe, that most eperienced traders will avoid trying to catch the tops and bottoms and focus on "the middle", waiting for confirmations to enter and confirmations to eit. This is liely what they were taught to do. /owever, since "the middle" is by definition where most of the trading is going on and is largely non1directional, there is also a lot of whipsawing in the middle, and that generates a lot of losing trades. 4ne can sometimes avoid this by widening the stops, but, since the maret always teaches us to do what will lose the most money, this will turn out to be an unproductive tactic. - used a combination of events to tell him when a wave was reaching its natural crest or trough5 the selling6buying climaes, the tests, higher lows6lower highs, and so on, all confirmed by what the volume was doing and by the effect the volume had on price (effort and result). -hat auction maret theoryprovides is the -/0 these events are taing place, providing an important clue as to whether they are culminating or merely preliminary. Since was big on etremes (climaes), support and resistance, stride, momentum, midpoints, etc., ! do not view any of this as being off1topic at all. !f anything, it's 7ust a natural etension (perhaps nic can chime in here with his opinion).
8es, there need to be criteria for eits. %ut the nearly universal problem that beginning traders have with regard to eits is a desire to trade all in then all out. $dd to that the fact that they are nearly always trading with one contract or one lot, and you have a doomed setup. The solution to eits is a simple one5 trade as if you were trading five contracts or five lots and abandon the idea of being able to eit with all of them at the eact top or bottom. The goal is to mae money, not to prove to oneself what a superior trader one is. Then determine in advance where each of those contracts will be sold. 9or eample, if one is trading support and resistance, sell the first contract at one or the other. Sell the second contract, for eample, at the lower high or the brea of the trendline, whichever comes first. Sell the third at whatever you didn't sell at for the second. Sell the fourth, for eample, at a breach of the last swing low. :eave the fifth, for eample, at breaeven. Then sell the first contract at whatever point you predetermined and paper trade the other four. ;o this for several months. -hen it becomes second nature, carry the second contract for real. Sell the first and second contracts at your predetermined points. 3aper trade the remaining three. $nd so on.
- says5 "!t is bad practice to buy a stoc simply because it has penetrated an established supply line or broen out of an etended congestion area< or to sell it merely because it has violated a line of support or broen through the bottom of a trading zone, and for no other reason. ;o not forget5 The breaing of a trend line, by itself, is neither a conclusive nor an all1inclusive symptom. The significant thing is /4- the line is broen< the conditions under which the change of stride occurs. The behavior preceding such an indication must also be taen fully into account. !n short, the #uality of the buying or the selling at and around the point of penetration determines whether the violation of an established stride may be regarded as evidence of a further movement in the direction of the breathrough, or whether it means only temporary change. This admonition applies e#ually to the violation of former tops and bottoms and old levels of resistance and support."
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Originally Posted by BlowFish
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Well well, DB posting charts with a left hand/outside lines on (channel line). What is the world coming to Seriously I had been under the impression that you did not pay much attention to left hand lines. Is this something you hae changed in your trading or is it more li!ely something I hae mis remembered" ! don't. !'m more interested in the (potential) support and resistance that are provided by the maret 11 such as a swing point 11 than ! am the imaginary support and resistance that are provided by a line that ! manufacture. %ut -ycoff used these lines to help him trac demand and supply, momentum, and stride, and all of that is perfectly legitimate. The trap lies in persuading oneself that the lines one has drawn begin to provide support and resistance themselves, which is (a) illogical and (b) not the point of drawing the lines in the first place.
0egarding resistance, there are several ways of looing at it. 4ne can, for eample, plot a volume distribution (the hinge is circled)5
;rawing a line below the bottom of the middle distribution gives one a zone on which to focus, particularly when price opens below this zone (price also opened below this zone the previous day, leading to another profitable trade)5
4r one can draw a bo around the congestion5
4r one can use plain ol' S60 lines, noting the test of the previous day's high5
3ut simply, support is the price at which those who have enough money to mae a difference are willing to show their support by retarding, halting, and reversing the decline by buying. 0esistance is the price at which those who have enough money to mae a difference attempt to retard, halt, and reverse a rise by selling. -hether one calls this money professional or big or smart or institutional or crooed or manipulative or (fill in the blan) is irrelevant. !f repeated attempts to sell below this support level are met by buying which is sufficient to turn price bac, these little reversals will eventually form a line, or zone. ;itto with resistance. $ swing high or low represents a point at which traders are no longer able to find trades. -hether that point represents important support or resistance will be seen the net time traders push price in that direction. %ut everyone nows this point, even if they aren't following a chart. !t eists independently of the trader and his lines and charts and indicators and displays. !t is the point beyond which price could not go. /ence its importance, both to those who want to see price move higher and those who don't. The first two posts to this thread address these matters, as do others here and there. /owever, finding S>0 in real charts in real time taes more than 7ust a couple of posts. %ut one must understand the nature of support 11 and resistance 11 itself before he begins to loo for it. 4therwise, he will find what he thins are S>0 in some very peculiar places. Before coming to any conclusions about what “works” or “doesn’t work”, and thus does or does not provide an edge, one ought to keep in mind that a given event -- such as price seemingly finding support or resistance at a trendline (or moving average, candlestick, Pivot Point, ib level or whatever! -- may be only incidental to what is truly providing that support or resistance" # fundamental misunderstanding of how $indicators$ are calculated and what they%re supposed to do can lead to all sorts of off-task behavior" &e think we see the indicators indicating something, or not, and believe we have made an important discovery" &e then devote our efforts to improving the hit rate and the probability of whatever it is we think the indicator is indicating when our efforts ought to be focused on determining whether or not the indicator is actually indicating what we think it%s indicating" 'n most if not all cases, it isn%t" onsider the virgin being tossed into the volcano) sometimes it results in a great crop, sometimes it doesn%t" *aybe tossing her in earlier or later will change the probability of a healthy crop" *aybe two virgins are better than one" *aybe si+" *aybe tall virgins are more effective than short ones" #nd surely age is important" But does the robustness of the crop
really have anything to do with tossing the virgin into the volcano in the first place he money under the pillow is not evidence of the e+istence of the tooth fairy, and spring will arrive regardless of whether the virgin is tossed into the volcano or not" (.b! !f price bounces decisively off support, then support is most liely good. 4T4/, if price tests support repeatedly, the odds of it failing is increased. The resolve of buyers may not be unassailable. $s for the T!&?=, is there a divergence during these tests@ $ classic decline on a retest is a concurrent decline in volume and price with a concurrent renewal of strength in both if and when price resumes its progress. &ompare the lengths and durations of the buying waves with the selling waves, i.e., do the buying waves last longer and go farther@ 4r are they getting shorter and briefer@ 4r are the selling waves beginning to last longer and go farther@ $s for the volume, it can be helpful but it isn't necessarily relevant until you arrive at a point or level where you're testing support or resistance. 3rice can move #uite a distance on very little volume if there's nothing to stand in its way. To illustrate5
Aote that price re7ected BC at the end of the day on 9riday after having spent so much time there midday. 3rice re7ected BC again this morning. 8ou don't now why. ;oesn't matter.
Aow at D, price tests what might be resistance (B), but it subse#uently maes a higher low (*). !t tests what might be 0 again, and it loos as though it doesn't want to go higher. %ut it
maes another higher low (). !t then spends #uite a lot of time struggling to move higher, but again maes a higher low (E). This might be called "absorption", i.e., eating away at supply. 3rice then finally maes a clean brea upward at F, but then moves sideways, digesting the move before moving ahead again at B. $mong the lessons here is that what price does A4T do (i.e., mae a lower low) is as important if not more so than what it ;4S do and provides 7ust as much information to the trader who's paying attention and is as free of bias as possible.
re: Trading Ranges
/indsight's a bitch. %ut what ! probably would have done in real time is shown below. The first bo is pretty straight1forward. ! would then have drawn the second, then the third, then perhaps 7oined them, though 7oining wouldn't have been necessary. $s for the second set of boes, if one doesn't have "volume", which you don't, he must be careful not to trivialize time. The amount of time spent at a given price or in a given range can be as important as the "show1off" volume which attracts so much attention with regard to the #uantity of shares, contracts, etc, traded. !n other words, if price spends a great deal of time within a given range, that activity can be more important than that which accompanies the short1lived spies. The swing highs and lows, particularly in spies, can be important, particularly since they draw so much attention to themselves. %ut they do not necessarily imply a great many trades, and perhaps not nearly as many as have been made during those long and boring and seemingly pointless sideways movements. Therefore, ! would focus on the more "filled" ranges (that's not advice< !'m 7ust telling you what ! 'd do). Aote also that the midpoint of bo E corresponds to the low of bo + and the high of bo .
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Originally Posted by cowseathay
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#ou can see that with each potential selling clima$ price drops sharply with a dramatic increase in olume. %he &nal clima$ that occurred didn't seem to hae any big olume bar, but a lot of olume occurred in a small period of time, which you may not pic! up if you were following bar by bar. lso, note that the &nal clima$es and sha!eout occurred at support (or right below), which signals a much higher chance of a reersal than if they occurred in the middle of nowhere. #ou can also see lower olume on the test, and then large olume during the sha!eout followed by rapid price reersal. %he ob of a sha!eout is to get rid of *wea! hands* so that a new moe could be started. nd as you can see that ob was accomplished with great success. 8our mention of the "final" clima and shaeout taing place at support should not be overlooed by those who read this. 2any novices search for selling climaes at every swing point that has higher than normal volume. %ut it is not unusual to find swing points with higher than normal volume. That's in large part what maes them swing points in the first place. So how does one differentiate between "climactic volume" and a selling clima@ %ecause the selling clima will tae place at or near an important support level. 4ne must understand that 7ust as distribution taes place on the way up and not 7ust at the top, accumulation taes place on the way down and not 7ust at the bottom (this is why price will sometimes spend very little time at the bottom before reversing and taing off in the opposite direction). The "climactic volume" that occurs when buyers attempt to provide "preliminary support" signals an effort toward accumulation. -ea holders will throw their shares6contracts bac on the maret when price continues to fall, but stronger hands will continue to slow and eventually halt the decline. This is what creates the bottom in the first place. 3rice does not 7ust stop as if it were hitting the sidewal after being dropped from a highrise. !ts fall is gradually slowed, as if braes were being applied, until it comes to rest. The accumulation which made possible the rise from B* to B** did not occur 7ust in those few minutes after the shaeout. !t began long before, from the first time buyers tried to halt the decline. There are those who claim that volume is useless, and if one doesn't understand what it is, then it is indeed useless to that individual. %ut if one understands that volume is a measure of trading activity, it becomes an invaluable aid at ey points and levels, providing that etra added insight into trader behavior which can mae the difference between a successful trade and a failed one.
The process is practically unvaryin!, and unolds accordin! to principles that maniest themselves a!ain and a!ain. For example, usin! the chart I posted earlier 5which no one has done anythin! with6, the irst tas% is to locate potential S/R. In this case, <*< is potential S rom the previous year 5this is obviously a daily chart, but the principles apply re!ardless6. Thereore,
when price pauses at <#<, one is alert to a potential reversal in advance o the test and draws a line there. Brice
Brice brea%s throu!h that swin! hi!h rom the retracement to <+<, retraces a bit, but doesn't even ma%e it all the way bac% to the line, su!!estin! a preponderance o buyin! pressure over sellin! pressure.
The act that price is testin! potential R is no reason to short in and o itsel. $our tas% is to observe what is happenin! durin! that test. )s or buyin! interest, traders have brou!ht price up over a hundred points, and i there were no buyers' interest at present, price wouldn't continue to rise. The lac% o activity su!!ests a paucity o sellin! interest, not o buyin! interest. ) move thru R tells sellers that they may have been wron!, which is where successul =s, short4coverin! rallies, and
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Originally Posted by dsn
as a lot of people who have sold at this level over the last 4 years would then start coming under pressure to buy.
That's it, in a more immediate timerame. Swin! hi!hs and lows can and oten do provide S/R, but amon! the more important S/R levels are those at which the !reatest number o people have the most to win or lose. Brice spent # wee%s at this level 5H/46 this year. That represents a lot o trades. I price can't hold here, an awul lot o people will be under water, and they'll be concerned. This is essentially the same dynamic represented by the