Some advice on support/esistance levels please!

[tommog]

Hi traders,

Please could you help me out on a problem that i have been having. I find looking for breaks of support and resistance levels a very profitable technique however i often get caught out when a price makes a false break of a s/r level by 5-10 pips only to retrace back into its trading range and i catch a nasty loss.

I know nothing in trading is risk free and i am happy to accept prices arent always going to act predictably, however i was wondering if there are any tips or techniques you could teach me that give you an idea of whether a breakout is likely to be a sustained one, or one to be treated with caution.

thanks a lot in advance,

tom

 

[TheBramble]

Increase your BO entry criteria by a little more than the number of pips that are typically faking you

OR

Wait for a retest (from the other side) of the BO before entry.

So, if you're potentially looking at an upside BO, wait for the price to re-test the upside Resistance and confirm it is now (temporary) Support before entry.

You'll miss some moves this way. You'll miss some fakes this way.

 

[c6ackp]

Hi Tom

I wonder how many time dimensions you are using to trade? As with any set-up, it's the "big picture" market context which will determine how hard/fast a move may develop. So, if you are trading 5min congestion breakouts and the trade makes sense on the hourly chart with plenty of clear air then the breakout will be more reliable. If it makes sense on the daily too, then you'll add to your edge.

Also, if you trade patterns then you'll know not to jump on any sudden moves at the "end" of certain formations (instead of jumping on the false breakout you'll be trying to snag the best possible price in the other direction).

Tony's pullback suggestion will help a lot 95% of the time. Occasionally though, there's not much of a pullback (I'm referring to forex here). So, if you have a good feel for the current price context, then you might decide that the opportunity is gilt edged and there's a chance that the market will get away from you. In this case you may opt to place an entry order to ensure you get a good seat at the banquet

Steve

 

[welsh_guy]

Hi Tom, as a day trader... i found that u have to watch how the level is broken! 90% you can tell in advice if the level is going to be broken by using the tick chart! i.e. shows you every trade and its size at what price... i.e. if the market is getting close to the level see how big the lots are trading through it... if they are small then its prob. going to come back... back test some sizes... and u will end up with a nice set of rules!

Happy dayz

 

[Strategic Trader]

always join the party late - make sure the price action has always confirmed the move you felt was going to happen, before you enter

no one wins on every outright trade, but better late and more sure - than early and broke for sure!

 

[Racer]

Look at volume and momentum

 

[dbphoenix]

You may be interested in some charts I posted for James:

http://www.trade2win.com/boards/showthread.php?t=14883

 

[tommog]

thanks everyone for your replies so far, i appreciate you taking time to answer my question. Im sure your advice will help mine (and others) trading. Regarding posts suggesting i take note of volume, as important as it in trading im not sure if it really applies to me as a forex trader where volumes are not really published and if they are need to be taken with a very large pinch of salt.

 

[StockCoach]

No matter what anyone says, you will NEVER know whether a breakout is going to be sustained or not, until it is too late. The markets generate RANDOM returns (not random results!) and you must approach it as such. Worry about the forest, not the trees.

 

[options]

sup and res?

Wait for the 2nd coming.