Beginner - Support / Resistance Question

[MajorDutch]

Another boll0x is choosing the pinnacle of a swing as a level. 5 times out of 10 it's an overshoot

I normally expect to see a reaction at this level though. price then will either go on to either a) totally break through or b)fully reverse in roughly equal measure or c) retest the level again. These reactions are tradeable.

 

[forker]

those reactions are where the opportunities are born.

 

[MajorDutch]

those reactions are where the opportunities are born.

 

[Tommygun66]

Just to clarify, when you say "Another boll0x is choosing the pinnacle of a swing as a level. 5 times out of 10 it's an overshoot" do you mean it's a fallacy almost to believe that e.g. a stocktthats rallying will fall back just because it hits a specific level?

 

[forker]

Thinking about reversal in a rally is not going to get anyone anywhere. You might nail 2 out of 20 trades that way. You are better served looking for continuation levels. Blindly selling or buying a level without context of the trend is a very bad way to trade support.There are 3 scenarios that typically play out.

1) price hits a level, spends a short period there before shooting through. Opportunities in this scenario come with a retest of the level just broken.

2) price breaks through a level without hesitating. If the trend is strong, the same opportunity exists as described in 1. If the trend is weak look at scenario 3

3) same profile as scenario 2 however the level fails to hold and price retreats below the level. This is the best and in my opinion the only safe way to trade a reversal. This scenario can also play out differently. It resembles scenario 1 but price behaviour at the level give subtle clues that the level is going to hold. This is also typically the area where you get a pullback for a continuation of the trend. I love this scenario because it's like a double payoff.

 

[trader_dante]

First off, a single previous swing low or high is NOT to be considered as S/R.

This is a gross generalisation and utter bollox. Edges come in many forms.

Agreed but the response is with reference to trading established S/R.

A swing high or low can become S/R and there are obviously many clues you can interpret from price to help you establish this and find a trade.

However I find buying or selling established S/R is way more profitable than buying a previous single swing low or selling a previous swing high.

Just my $0.02c.

 

[MajorDutch]

Agreed but the response is with reference to trading established S/R.

A swing high or low can become S/R and there are obviously many clues you can interpret from price to help you establish this and find a trade.

However I find buying or selling established S/R is way more profitable than buying a previous single swing low or selling a previous swing high.

Just my $0.02c.

That's what I figured u meant dude. If a buy and hold at s/r it is better to do it at established s/r and after the reactions. So a daily pin bar would often encompass 5m reactions to the level.

 

[MajorDutch]

See what u r getting at. Trading reversals against a trend is very difficult and not very forgiving but still possible. With trend trading is more forgiving. I am a fan of elder's triple time frame. A reversal at a pullback in trend back into the trend can be powerful.

Thinking about reversal in a rally is not going to get anyone anywhere. You might nail 2 out of 20 trades that way. You are better served looking for continuation levels. Blindly selling or buying a level without context of the trend is a very bad way to trade support.There are 3 scenarios that typically play out.

1) price hits a level, spends a short period there before shooting through. Opportunities in this scenario come with a retest of the level just broken.

2) price breaks through a level without hesitating. If the trend is strong, the same opportunity exists as described in 1. If the trend is weak look at scenario 3

3) same profile as scenario 2 however the level fails to hold and price retreats below the level. This is the best and in my opinion the only safe way to trade a reversal. This scenario can also play out differently. It resembles scenario 1 but price behaviour at the level give subtle clues that the level is going to hold. This is also typically the area where you get a pullback for a continuation of the trend. I love this scenario because it's like a double payoff.