Support and resistance - total rot ?

[Shakone]

Well suppose you want a nice widescreen TV. And your friend just bought one a few weeks back, exactly the make and size you want, and he paid 500 for it in a special advertised deal and boasts about the bargain he got. You go to the shop and the price tag is 600. Are you going to buy it? Or are you going to wait for it to come down in price? Presumably, if your friend bought it for less, you don't want to pay more, unless there is a fundamental reason why it should cost more now.

So you wait a while, and price comes down towards 500. You think, why not see if I can get it for less than 500. It drops to 490, but you notice that they're selling out quickly. You don't know why, but it seems a lot of people were waiting for the price to fall too. So you decide to buy while you can. And price goes up again.

Then someone asks you, why did 500 act as support? Was it self-fulfilling? Well yes in the sense that I wasn't willing to buy unless the price was less than or equal to 500, but no in the sense that I would rather buy at 400 or less, but there was just too much demand.

 

[meanreversion]

bet hes not short of a few though lol.

Actually he hasn't made that much from his career; even in the cut-throat world of banking backstabbing isn't always rewarded.

 

[maiden22]

Support and resistance don't work, nor do they exist. This is simply fact.

They are however the most important tools that I use and form the basis of most of my trades.

I lost consistently until I started to pay attention to them. An appreciation of what they signify has totally transformed my trading.

 

[meanreversion]

Support and resistance don't work, nor do they exist. This is simply fact.

They are however the most important tools that I use and form the basis of most of my trades.

I lost consistently until I started to pay attention to them. An appreciation of what they signify has totally transformed my trading.

Excellent ... this reminds me of something I read somewhere about "trading your beliefs" (is that Van Tharp?). We draw all these lines, have moving averages etc and they are all only of meaning in our head. But if they exist in the minds of sufficient people, then it may impact on price action itself.

 

[Hilarymannah]

New highs and lows are continually being posted throughout the day,...and the market definitely uses these markers to take profits,..."FACT" !

 

[timsk]

Hi m_r,

Excellent ... this reminds me of something I read somewhere about "trading your beliefs" (is that Van Tharp?). We draw all these lines, have moving averages etc and they are all only of meaning in our head.

Too true!

But if they exist in the minds of sufficient people, then it may impact on price action itself.

Also true, but the problem here is having enough people looking at the same charts - be they line, candle, renko, P&F, constant volume etc. on the same timeframe with the same swiggly lines and MAs drawn on them, interpreting them the same way and looking for the same set ups and entries. Therein lies the rub.
Tim.

 

[montmorencyt2w]

Lines in the sand, and about as permanent?

 

[maiden22]

Excellent ... this reminds me of something I read somewhere about "trading your beliefs" (is that Van Tharp?). We draw all these lines, have moving averages etc and they are all only of meaning in our head. But if they exist in the minds of sufficient people, then it may impact on price action itself.

I think "belief", for want of a better word, is key, particularly when it comes to trade management. But belief isn't really belief as such - it's a combination of experience, back-testing, logic, understanding and so on.

At the end of the day, all we are looking at is how price behaves (in my opinion). But again, price doesn't "behave" in any way - it's just a reflection of how people have traded.

My approach is to try to understand what is going on in the market based on price movement. Candles, support etc are just visual representations of this. I then try to use this understanding to make money - not (and this is key for me) to try to predict what will happen.

All this is quite difficult to explain, and much of it might appear contradictory, although you obviously seem to understand what I mean.

The thing I have come to realise is that there is no answer, or if you prefer there are thousands of anwers. I say s/r is key - let's imagine that you say it is rubbish. I might be right, you might be right, we might both be right, we might both be wrong. It all comes down to the trader.

I think that there is an excellent point in your post, about enough people thinking something at the same time. Because they simply have to. Price doesn't "move" - enough people trade in one direction to change it. Orderflow is king - without it price goes nowhere.

That at least is how I see it, but I'm quite happy for anyone to say I'm wrong.

 

[Rossini]

The thing I have come to realise is that there is no one answer, or if you prefer there are thousands of anwers. I say s/r is key - let's imagine that you say it is rubbish. I might be right, you might be right, we might both be right, we might both be wrong. It all comes down to the trader.

The above part of your post summarises the thread well. All I have done is add one word that's in red.

 

[maiden22]

The thing I have come to realise is that there is no one answer, or if you prefer there are thousands of anwers. I say s/r is key - let's imagine that you say it is rubbish. I might be right, you might be right, we might both be right, we might both be wrong. It all comes down to the trader.

The above part of your post summarises the thread well. All I have done is add one word that's in red.

Thank you.

 

[Hilarymannah]

To determine the validity of S/R,..doesn't depend on "opinion",.it is an empirical exercise !
If it works every time, through rigorous testing, the results are conclusive, in and of themselves,....
"NO MATTER WHO IS OBSERVING!

 

[robster970]

 

[jm99]

self-fulfilling, like all ta

 

[counter_violent]

New highs and lows are continually being posted throughout the day,...and the market definitely uses these markers to take profits,..."FACT" !

Except when price doesn't stop and all the dumb money exited after the hesitation after the break.

 

[Hilarymannah]

"Except when price doesn't stop and all the dumb money exited after the hesitation after the break."

This is where skill and discernment (opinion), come into play ! ; )

 

[DionysusToast]

To determine the validity of S/R,..doesn't depend on "opinion",.it is an empirical exercise !
If it works every time, through rigorous testing, the results are conclusive, in and of themselves,....
"NO MATTER WHO IS OBSERVING!

And the fact is that the validity of S/R has never been proven through a valid peer-reviewed study.

All of the evidence is anecdotal.

 

[Hilarymannah]

DionysusToast,.....LOL !,...thanks, that little querp,. got you the first laugh of the day!,...
(Don't take offence!), I just thought it funny,...; )
BTW: Good luck in your trading,..onwards and upwards,..or downwards,..or, hmmm,..sideways,..

 

[trader_dante]

The fact is, if Steve Jobs died tomorrow, would we expect prior support on AAPL to hold ?

Nope but I can almost guarantee you it would become resistance.

 

[Hilarymannah]

trader dante,....."Almost" Guarantee?,...a slip of the tongue, will almost always get you into trouble !
Have a good day!,..; )
(I was just bored)

 

[trader_dante]

trader dante,....."Almost" Guarantee?,...a slip of the tongue, will almost always get you into trouble !
Have a good day!,..; )
(I was just bored)

hehehehe