resistance is not futile...but assessing its potential might be...

[splashy]

The more i trade, the more i disregard indicators in favour of everything price action can tell me except i want to speak its lingo better. Sometimes i see good profits head off into the sunset when i've had a good signal that i chose not to pursue because of some s/r that i have drawn onto my chart. So maybe i'm overdoing it, being a little overcautious or just plain misstaken - no one gets it right every time but...hence, what makes effective resistance or support?

I've trawled through some of the older threads and had a little insight but i'm fed up trawling and anyway, there is probably a different profile of members here now that may hopefully add other stuff.

stuff like:
1) If a line of support has been hit 5 times and is about to be hit for a 6th, do you think to yourself "its bounced 5 times so it'll probably bounce a 6th", or do you think "its been attacked 5 times, its more likely to break now than last time". In other words, does it get stronger or weaker with repeated attacks as the pressure builds.

2) If a trendline has been pierced, resistance becomes support and vice versa. But if it has been pierced 2 or 3 times without the pa pausing for breath and then the pa gravitates back to the line again and bounces off it , how strong is it now? Stronger or weaker than if it had never been pierced?

3) If a resistance level came from a double top from a year ago, how valid is it now? As valid as it was then? Does time add to its potential for problem, detract from it or have no effect?

4) When a line of support with 5 touches makes confluence with falling trendline with 5 touches, all other things being equal, which is stronger? I know its usually continuation but hypothetically disregard momentum for a moment. Which is stronger?

5) When should you trade through round numbers and when not?

6) How would you trade shallow/steep trendlines? differently?

Also, interested in
7) Do fibs provide reliable resistance/support levels?

8) Do pivots provide reliable resistance/support levels?

9) Can s/r be measured or quantified in the same way that an indicator might measure trend strentgh etc.

I know what the answers will be to some of these but i'm interested anyway and i hope i'll be surprised. :clap:

 

[VielGeld]

There are two "objective" measures I have observed so far in the market:

1) Support/resistance.

2) Mean reversion.

If trading were to be likened to a science, then these two are the basis I would look at, similar to how Physicist would prefer to start from elementary particles.

The "art" of trading kicks in when assessing their impact on price. From observation and experience, you can come to tell where and how price will behave. Take notes, experiment, etc. i consider myself as a scientist when studying the market.

For anything else, I flip a coin like Hare.

 

[DionysusToast]

Resistance means 1 of 2 things - sell-side liquidity above or lack of buyers as you move up to a certain price.

Either way it means prices are fair for sellers and unfair for buyers.

People can add more sell-side liquidity above or it gets eaten with buy market orders.

So does resistance get weaker as it gets hit? Yes - UNLESS people have a reason to add more sell side liquidity at that point. But is it really getting hit or are buyers nuts shrinking @ that point?

What motivates people to buy or sell up there?

 

[Lee Shepherd]

Hello Splashy,

Everything you have highlighted is fantastic trading and most widely used. Unfortunately you're not going to like my answer as it leaves it as open as it is to profit from trading itself and will simply not provide you with (maybe) the simple answer/solution you were hoping for.

In short, all the questions above can and should be answered like this:

It depends on other instruments/indicators/fundamentals you are using.

It needs to be broken down and analysed each in more detail, it wont be done in a post on a forum.

Lee

 

[puppetmaster]

The "art" of trading kicks in when assessing their impact on price. From observation and experience, you can come to tell where and how price will behave. Take notes, experiment, etc. i consider myself as a scientist when studying the market.

I think it begins as a science and evolves into an art. You could come up with answers for all the above questions but at the end of a frantic day when everything has moved twice its adr, it might not count for anything and thats when it becomes an art, knowing when the rules don't apply anymore. S/r then takes on more relevance or less depending on the stretch.

 

[splashy]

Hello Splashy,

Everything you have highlighted is fantastic trading and most widely used. Unfortunately you're not going to like my answer as it leaves it as open as it is to profit from trading itself and will simply not provide you with (maybe) the simple answer/solution you were hoping for.

In short, all the questions above can and should be answered like this:

It depends on other instruments/indicators/fundamentals you are using.

It needs to be broken down and analysed each in more detail, it wont be done in a post on a forum.

Lee

Thanks Lee,
if it sounds like i'm looking a magic formula, i'm not. Obviously there isn't one but the thought processes behind some areas of s/r etc differ to mine and i guess i'd like to understand how others think about these things.

On the other hand, simple would be great, wouldn't it? :clap:

 

[hwsteele]

Two things I would like to add are the following:

1:Scaling your charts where price and time are a constant ratio
and
2:Making charts by hand

will change the way you see the market(most likely) and when you draw things on those charts(trend lines, support and resistance) they will tend to fit the market better.

This does not directly address the questions you asked but will give a new way to see things(if you don't already do 1 and 2) that will help you come to your own answers.(which are the only ones that really matter)

 

[splashy]

Two things I would like to add are the following:

1:Scaling your charts where price and time are a constant ratio
and
2:Making charts by hand

will change the way you see the market(most likely) and when you draw things on those charts(trend lines, support and resistance) they will tend to fit the market better.

This does not directly address the questions you asked but will give a new way to see things(if you don't already do 1 and 2) that will help you come to your own answers.(which are the only ones that really matter)

interesting...
re 1) i've occasionally heard of scaling charts with constant ratio but never got around to it. Good thought...
re 2) What do hand drawn charts bring to the table? Is it just a perspective thing? I draw P & F charts by hand but thats mainly out of habit...

thanks

 

[splashy]

i guess that what i'm getting at is what other peoples thought processes are when assessing s/r. I have my own set of criteria and they seem to work for me but i've aways been fascinated how we look at the same chart and all see things slightly differently (psychology degree point in case....). It has become a bugbear of mine recently.
Just this morning i saw a trade taken by a good trader and i couldn't work out why but he said he had a line. And sometimes i'll see a trade taken off a line and i'll think 'no chance'. But they think they've got a chance so what are they seeing that i'm not. Doesn't mean that they are right, or wrong, but i want to know why they are thinking what they are thinking, hence the above questions.
I've never really seen these things discussed anywhere by traders. There are some good ones on here so i thought i'd throw it open. It'll either enlighten me, or it won't. :cheesy:

Also, sometimes its easy to slip into a ceratin way of thinking about something that may be unhealthy and something like this makes you think about it again in a new light. Having said that, there is always someone more experienced than me out there and i don't pretend to know all there is to know.

 

[DionysusToast]

For me, support or resistance areas aren't great places to enter a trade.

They are quite crowded areas to enter, lots of people are watching them, lots of stops around them, people going short @ resistance, people going long on a breakout. You often see resistance areas pierced, appear to fail and then move in the opposite direction. There is no small amount of manipulation in these areas. Hence, often too crowded.

As you move up to an area you think will hold, you should have an idea on what a likely potential target to the downside is. If there is lots of room to the downside, I think it's better to stand aside and let all the 'line players' have their squabble. Once the result is known, you can take a higher probability short at a worse price on the way down in an area that is way less crowded.

 

[PATrader]

Think of support and resistances as guides and a lot of your problems would be solved. I re-iterate, they are just guides. They don't just come about and appear on your chart like magic. They are all formed by price action, which ultimately, comes from market behaviour, eg your big boys, invisible hands, herds whatever you want to call it. Therefore, when you see price near these areas, its still the candles that you will be looking out for, whether they want to reverse or break through at these levels. Hence, in a sense, there is really no such thing as strong or weak supports or resistances. All depends on the market behaviour.

 

[wackypete2]

Think of support and resistances as guides and a lot of your problems would be solved. I re-iterate, they are just guides. They don't just come about and appear on your chart like magic. They are all formed by price action, which ultimately, comes from market behaviour, eg your big boys, invisible hands, herds whatever you want to call it. Therefore, when you see price near these areas, its still the candles that you will be looking out for, whether they want to reverse or break through at these levels. Hence, in a sense, there is really no such thing as strong or weak supports or resistances. All depends on the market behaviour.

I'll disagree with you on the part I highlighted. Weak S/R area would be where there was minimal action from the larger players. In effect the retail contingent has determined these areas. Sometimes they are easy to spot where you have S/R zones with minimal volume, and sometimes they are difficult to spot, especially with forex where volume is tick based.

Peter

 

[PATrader]

I'll disagree with you on the part I highlighted. Weak S/R area would be where there was minimal action from the larger players. In effect the retail contingent has determined these areas. Sometimes they are easy to spot where you have S/R zones with minimal volume, and sometimes they are difficult to spot, especially with forex where volume is tick based.

Peter

Well, maybe I should clarify my point. I do agree with what you said above. What I meant is, if the big boys wanted to move price past these S/R zones/levels, they could. Or else why would we see higher and higher prices that breaks strong resistances or lower and lower prices that breaks strong support? Hence, in that sense, the "no such thing"... I hope that makes sense. hmm..

 

[wackypete2]

For me, support or resistance areas aren't great places to enter a trade.

They are quite crowded areas to enter, lots of people are watching them, lots of stops around them, people going short @ resistance, people going long on a breakout. You often see resistance areas pierced, appear to fail and then move in the opposite direction. There is no small amount of manipulation in these areas. Hence, often too crowded.

As you move up to an area you think will hold, you should have an idea on what a likely potential target to the downside is. If there is lots of room to the downside, I think it's better to stand aside and let all the 'line players' have their squabble. Once the result is known, you can take a higher probability short at a worse price on the way down in an area that is way less crowded.

These are the area I like to play round in for exactly the reasons you stated. Often you can spot the manipulation such as a quick spike up/down and then reverse. That's the time to get in - when everyone else just got washed out.

Peter

 

[DionysusToast]

These are the area I like to play round in for exactly the reasons you stated. Often you can spot the manipulation such as a quick spike up/down and then reverse. That's the time to get in - when everyone else just got washed out.

Peter

Makes a lot of sense to me. Much more sense than buying/selling the lines themselves. Still - it takes balls to take those sorts of trades, or maybe not they work out more often that a simple play off the line.

It's sort of like moving up the food chain a few levels!

 

[splashy]

For me, support or resistance areas aren't great places to enter a trade.

They are quite crowded areas to enter, lots of people are watching them, lots of stops around them, people going short @ resistance, people going long on a breakout. You often see resistance areas pierced, appear to fail and then move in the opposite direction. There is no small amount of manipulation in these areas. Hence, often too crowded.

As you move up to an area you think will hold, you should have an idea on what a likely potential target to the downside is. If there is lots of room to the downside, I think it's better to stand aside and let all the 'line players' have their squabble. Once the result is known, you can take a higher probability short at a worse price on the way down in an area that is way less crowded.

Sure. And thats the way i trade. My pips tend to arise from new trends after a confirmation rather than spinning on a sixpence and catch the early moves. The guys who do that will look for confluence so that maybe 2 or 3 lines of resistance converge and use the aggregated stregth as justification to trade. And maybe they'll have bigger r/r ratios to cover their losses.

And i'm not saying it doesn't pay. But you only have to look at the breakouts and fakeouts to see what a minefield it is and sure some of that will be manipulation by the big boys. If you can spot the fun and games as wacky does, quids in!

On any chart there will be a myriad of s/r points, albeit sometimes on very small timescales. The minute men will have theirs which will be irrelevant to the larger t/f traders and so on up the chain. You only have to look at a chart at the end of the day to see any number of potential s/r points broken on every timescale. And the reasons why are varied - news, time of day, volume etc., the ingredients are constantly changing. But even when the break can't be attibuted to anything obvious, there is still a break.

I admit i always want to be better than the next guy, so i guess if i know what he thinks, i've got a better chance.
And the way people think about the questions i posed genuinely interest me. Some charts i see are like the horizontal hold gone tits-up on my telly, so many lines. I don't need that many, so why do they?

 

[splashy]

Hence, in a sense, there is really no such thing as strong or weak supports or resistances. All depends on the market behaviour.

I think what you mean is that the s/r isn't proven to be strong or weak until after the fact because until pa reaches that area, its only theoretical/potential for problem. If it goes straight through, it can't have been strong and i guess that is down to the market behavious at that time.

 

[splashy]

Weak S/R area would be where there was minimal action from the larger players. In effect the retail contingent has determined these areas. Sometimes they are easy to spot where you have S/R zones with minimal volume, and sometimes they are difficult to spot, especially with forex where volume is tick based.

Peter

Good point.

 

[hwsteele]

interesting...
re 1) i've occasionally heard of scaling charts with constant ratio but never got around to it. Good thought...
re 2) What do hand drawn charts bring to the table? Is it just a perspective thing? I draw P & F charts by hand but thats mainly out of habit...

thanks

When I first started to make charts by hand I started to see the market in a different way that, to be honest, I can't really describe. It's just different, and I believe better. Also, once that different perspective started I could still see it on computer drawn charts for quite some time. After a while I did have to go back and do more by hand to "refresh" the new perspective. The only problem is it is VERY time consuming unless you are only following a couple of markets on larger scale time frames.

It helped me see things in a better light so you never know. Maybe pick a market and try it for a few weeks/months with weekly and daily charts.

The last thing I would say that might give a different perspective on things would be to look for "support and resistance" on the "X" axis of the chart. You may find that you get interesting results.

 

[PATrader]

I think what you mean is that the s/r isn't proven to be strong or weak until after the fact because until pa reaches that area, its only theoretical/potential for problem. If it goes straight through, it can't have been strong and i guess that is down to the market behavious at that time.

yes, that's about that. Another way of saying it. Even a "perceived strong s/r" can be broken. Therefore, in a bigger sense of things, no such thing as weak or strong. It all depends on market behaviour (bb, political news, herd etc). No need to be too concerned whether its weak or strong. Just look at price action around your desired levels and act accordingly