A kitchen-sink approach to support and resistance

chaos · Feb 16, 2003

Hi everybody,

I would like to develop an trend-indentification program in Excel that will sound an alert whenever the indicators in the program all agree, or a substantial number of them agree, that a trend is about to begin or has begun.

My initial goal is to use the system to trade currencies, but I expect that with adjustments it would work most anywhere. When the system signals a long trend, I will watch for long entry opportunities on an intraday basis. Opposite for short.

Think of it as a kitchen-sink system. It should include everything that traders consider on a daily and intraday basis when determining support and resistance.

My knowledge of this is incomplete, but here is what I have come up with so far:

pivot points
previous highs/lows on different time frames
moving averages
fib
elliot wave
average historical trading ranges
confirmation by co-related currency pairs

What else should the system include? What have I put in that should be thrown out? Your comments and suggestions would be much appreciated.

Good trading to all,

chaos

harrytrader · Feb 16, 2003

The problem is not to include, the problem is how to put everything together and then EXCLUDING as much as possible stuff

Quote from chaos:

What else should the system include ?

chaos · Feb 16, 2003

Quote from harrytrader:

The problem is not to include, the problem is how to put everything together and then EXCLUDING as much as possible stuff

Thanks harrytrader,

Sounds like you've been there and speak from experience. Would you mind elaborating on the sorts of problematic situations that arise with this kind of multiple-indicator system?

I could imagine, for example, missing some moves because not all the indicators were giving positive signals. But I would be happy to generate an average of only three or four signals a day as long as they were high probability.

BTW, I'm aware of currency traders who successfully use systems like this. I just don't know the specifics of their indicators or the relative value they attribute to each.

This is what I'm hoping people here can help me with.

For instance, if price crosses above R1 of the current day's pivot point, that's a sign the trend may be long. But if it also crosses R1 of the moving averages of the three-day and five-day pivots, that's an even better sign.

Similarly, if price closes above the 20 EMA once, that's a good long sign. If it closes above twice, that's an even better sign. If the 5 EMA crosses the 20 EMA, even better yet.

So... what other trend indicators should I include. And how, ideally, should they be applied. As mentioned in my initial post, these are the indicators I plan to experiment with:

pivot points
previous highs/lows on different time frames
moving averages
fib
elliot wave
average historical trading ranges
confirmation by co-related currency pairs

I should also have included bollinger bands.

Suggestions of other indicators I should explore would be appreciated.

Good trading all,

chaos

profitseer · Feb 17, 2003

If you set up a chart using line on close and add 1,2,3,4,5,6,7,8,9 and 10 period channels, you can make a chart that looks just like a super moto X track.

I got the idea from watching ESPN2.

Makes you feel like you are right there.

Now what was the question?

harrytrader · Feb 26, 2003

I will answer this we since it could be a little long depending on my inspiration

Quote from chaos:

Thanks harrytrader,

Sounds like you've been there and speak from experience. Would you mind elaborating on the sorts of problematic situations that arise with this kind of multiple-indicator system?
chaos

chaos · Feb 26, 2003

Quote from harrytrader:

I will answer this we since it could be a little long depending on my inspiration

Hi harrytrader,

I'm not sure, due to a small typo in your post, what you mean... will you answer this week, this way or something else?

One way or the other, nice to hear from you.

Nobody else appears to take an interest in this topic.

maxpi · Feb 26, 2003

Trends begin when the direction changes. Just watch for a change in direction and you will never miss the beginning of a trend.

All seriousness aside, I think the ADX indicator is supposed to identify a trend and measure the strength as well.

Max

dbphoenix · Feb 26, 2003

Quote from maxpi:

Trends begin when the direction changes. Just watch for a change in direction and you will never miss the beginning of a trend.

I assume you mean a change in direction from directionlessness. If a trend is in place, it can change direction to sideways. From here it can continue the previous trend or it can reverse. "Change" should not be equated with "reversal".

--Db

chaos · Feb 26, 2003

Quote from maxpi:

I think the ADX indicator is supposed to identify a trend and measure the strength as well.

Max

Hi maxpi,

i have only a passing knowledge of ADX but will look at it in due course.

for now i am focused on developing a system to identify trend direction and support and resistance levels. my theory is that if multiple methods are used, the trend identification should be high probability as should the identification of support and resistance levels.

i wish i could report more about my progress, but i'm still in the learning-excel stage. see my initial post for some of the methods i intend to explore.

in strongly trending markets, such as the forex market where i am focused, this approach would seem to have merit. i can't say for certain, but i think a number of the forex signal companies do essentially the same thing.

chaos

Wappers2 · Feb 27, 2003

I remember knocking something up like this with the help of a bond trader buddy way back when. The system got *immense* and basically boiled down to a multi-dimensional matrix of combinations that (we hoped) would reveal extremely high probability opportunities based on the statistical analysis of years of data for each indicator.

ooof. we ran it for a while on most of the major indices, and,... basically it didnt work. It was a very pretty display tho - we put it into a 'chequer-board' pattern to make it easier to read.

Personally, I suspect the reason it failed was that the combination of probabilities of multiple indicators was not being calculated correctly (e.g. if indicator A = 75% accurate, and indicator B = "90% accurate", if A AND B together, is it 75% x 90% = 67.5% or is the probability of the combination NOT being correct 1- 75% * 1-90% = 2.5% (i.e. its 97.5% ON!))
Harry Trader? Any ideas for this guy?