best ways to tell that S or R is holding?

[FanOfFridays]

Quote from flier6:
I need some help in regards to determining if a level is holding or not in real time.
Let's say that price is trading up toward a resistance level that I think will hold and I want to get short at that level. What are the things I should be looking for before entering short?
Thanks for your help.

If you examine the question you asked carefully, you'll see that you are actually asking two different questions.

1. You say that you need to determine whether a level is holding or not. That means that the level has been reached - is it holding?

2. The you say 'Let's say price is trading up toward a resistance level that I think will hold'. Ah! that's different.

See that? Two subtly different things. If you're fading a move, then you're presumably entering when price touches that S/R level you've identified. In that case you can reasonably ask what to look for before entering.

I think I know what your problem is. Perhaps you enter S/R trades and you see price tick above the line you've drawn. Your stops are getting hit, only to find that the price moves in the direction you thought it would. Is that accurate? You're trying to figure out how to avoid this.

I hate to tell you this, but as valid as John's points are, there is no answer to your question. There are some trading cliches that are useless (like 'You can never go broke taking a profit'). There are some which are valuable, like 'trade what you see'.

It's all about position sizing and trade management, as much as that seems like another cliche. I'll bet you've experienced this one too - you enter, price immediately goes in your direction, then starts to retrace back to your entry point. You wonder 'How in the hell am I supposed to let this winning trade turn into a loser?'. So you blow it out with a small profit, only to see price go hard in your direction.

No way to figure this one out except by doing it over and over. There are plenty of guys who daytrade by legging in. This takes iron discipline and is not the same as averaging a loser down, since the point at which the trade is defined as a loser is not met until the full position is put on and price has breached a level based on R/R calculations at that level.

 

[jficquette]

Quote from traderNik:

If you examine the question you asked carefully, you'll see that you are actually asking two different questions.

1. You say that you need to determine whether a level is holding or not. That means that the level has been reached - is it holding?

2. The you say 'Let's say price is trading up toward a resistance level that I think will hold'. Ah! that's different.

See that? Two subtly different things. If you're fading a move, then you're presumably entering when price touches that S/R level you've identified. In that case you can reasonably ask what to look for before entering.

I think I know what your problem is. Perhaps you enter S/R trades and you see price tick above the line you've drawn. Your stops are getting hit, only to find that the price moves in the direction you thought it would. Is that accurate? You're trying to figure out how to avoid this.

I hate to tell you this, but as valid as John's points are, there is no answer to your question. There are some trading cliches that are useless (like 'You can never go broke taking a profit'). There are some which are valuable, like 'trade what you see'.

It's all about position sizing and trade management, as much as that seems like another cliche. I'll bet you've experienced this one too - you enter, price immediately goes in your direction, then starts to retrace back to your entry point. You wonder 'How in the hell am I supposed to let this winning trade turn into a loser?'. So you blow it out with a small profit, only to see price go hard in your direction.

No way to figure this one out except by doing it over and over. There are plenty of guys who daytrade by legging in. This takes iron discipline and is not the same as averaging a loser down, since the point at which the trade is defined as a loser is not met until the full position is put on and price has breached a level based on R/R calculations at that level.

Great points. I assume it hadn't reached the target yet and he wanted to know what were some clues to look for in anticpation. I just through in the 2 pts benchmark in case he wanted a number to use if it has already hit and how much room to give it before he should bail.

 

[bighog]

Lets keep it simple, short and sweet. EXAMPLE: you are looking at price approaching a resist level for the first time and you want a continuation of price advancing up from the previous leg. Lets assume the resist is yesterdays high price. Price gets to within 2 ticks of the resist and starts to slow down and actually retreats some. Many will assume the resist has held and rookies will actually go short............... WRONG!!!!

Price sniffed the previous resist area like a dog at the hydrant, the dog and the trader both know what they want but are suspicious. Price went up and backed off because the rise in price slowed down as the longs saw no new blood coming in to push price past the resist so they took profits before the resist point and that caused the small retracement. The sellers gained no floowers either as the retracement was shallow which told the longs and potential new longs to expect another attempt at the highs. The dog is thinking seriously about claiming the hydrant because he does not smell danger as he like thre traders still know what they want.

maybe we see the same scenario played out for a second time. NOW the next test is going to be serious because a mkt that can not go up will come down from the simple fact of no buyers to h9old price up and thus the longs will want to sell out of a weak mkt.


On the 3rd try price takes out the high and your job changes from watching for a breakout to be on the alert for a false breakout. Once price breaks out you immediately want to see price follow through by bringing in either new longs that are now believers or shorts bailing out and buying to cover their ass. You care less who, why the buyers are because your mission is simple price action.

IF price starts to slow AFTER the breakout you again immediately assume you are in danger because the new blood in not coming into the mkt. The dog that just let loose would run if another dog came along and chased him away from his new hydrant.

Learn how to WORK breakouts and you will not be afraid of them because you can manage a flase breakout. You must take the breakouts in order to catch the "RUN". There is a reason why chickens are food for others as there is a reason why lions are the KING of the jungle. Which are you?

False breakouts can actually be good to pay for commissions because most breakouts will give you a few ticks and if you read price action properly you can grab a couple ticks before it comes back to the breakout point.

Put yourself in the other traders shoes and imagine what they will do when price does what price will do.

there is no way to tell about price action because we all react as we will when price does what price will do. This is a mkt of the PLAYERS and the shorter the time frame (down to 5 minutes only because less than that is just noise and trading noise is a fools game), the less fundamentals and blabber, a bias, thinking etc matter. Your game is to trade and not to intellectualize this stuff. Trade it or be square.

OK, thats it to many posts this weekend. Winter is cold and sleet out so stuck inside this weekend. Far, FAR less posts and chat this new year. Enjoy the new year.

 

[FanOfFridays]

Quote from jficquette:
Great points. I assume it hadn't reached the target yet and he wanted to know what were some clues to look for in anticpation. I just through in the 2 pts benchmark in case he wanted a number to use if it has already hit and how much room to give it before he should bail.

Yep, your 'things to look for' were all excellent. Also, the 8 ticks ES benchmark is also reasonable (I just don't believe 95% of the guys on here who claim to trade the ES with a 3-tick stop).

 

[NoProblem]

Quote from flier6:

I need some help in regards to determining if a level is holding or not in real time.
Let's say that price is trading up toward a resistance level that I think will hold and I want to get short at that level. What are the things I should be looking for before entering short?
Thanks for your help.

First, realize that S/R levels occur at different levels depending on your trading time frame.

For example, resistance on the daily may be $10.00, but on the 1 minute it could be $9.20.

Generally speaking, the longer the time frame, the stronger the level.

After that, to help avoid getting shook out, trapped or fooled, learn to use the two bar break w/ low volume pull back lesson that SnP500Trader on YouTube teaches.

Steve

 

[jficquette]

Quote from flier6:

All good stuff John. Thanks.




By expectancy, do you mean the distance between the entry and the next area of R/S? In other words, how far you expect price to go before encountering additional roadblocks?

Yes. Also consider market conditions. Some days that setup will work, some days it will not. So expectancy also includes confidence in the trade based on experience.

That's why is important to just study one or two methods and really learn how they work. It's easier to build confidence in method after you make money doing it.

Also one other thing. Consider the prior day. Say you had a big expansion day yesterday on news and say today no government reports are due out, no news etc then one should expect a meandering day today. If the prior few days were lower range and today the market is up with Naz leading the way then use some trend following method to get in. At least don't fade it.

Here is a good trending system to use if you are willing to put in the time to learn it.

http://www.trading-naked.com/FloorTraderMethod.htm


John

 

[Johnzo]

What's up traders,

I think if you want real time view of when S/R levels could be holding or weakening, you will want to incorporate reading the order flow.

If we want to short the S&P at 900. Which for this example is a resistance level, we will want to look at the orders that are coming in as price approaches the 900 level. If there are massive amounts of offers and a high volume of contracts trying to be filled short that is a start that maybe 900 will hold. The next step is to pay attention and watch to see if the orders are filled. Say price approached 900 and the size of the offers shrinks or most are taken off before filled then that could have been a trap to lure traders into setting their shorts ahead of the size so the pros longs can be filled. When the contracts are taken off that mean that the "smart" money way be looking at longs and luring speculators into filling there longs with going short. If that happens and price break above you can usually scalp it long based on the fact that there may not be much volume above the 900 level which will allow the price to run up.

If the volume stands and the contracts stay open at those prices as the price approaches 900 and they are then filled, you may want to short because that could be proof that for the time being resistance is holding.

Does this help?

Johnzo

Everyone is free to critique this.

 

[Tums]

Quote from flier6:
I need some help in regards to determining if a level is holding or not in real time.
Let's say that price is trading up toward a resistance level that I think will hold and I want to get short at that level. What are the things I should be looking for before entering short?
Thanks for your help.

Draw some channels.

Look for the Channels Document in the 2nd post.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=83604

 

[flier6]

Quote from Random.Capital:

If it isn't going above R or below S, then it's "holding".

Are you sure you're asking the question you want to ask?

Yeah, good point.
I guess what I mean is that it's easy for me to see when price is blasting through the level. What's trickier is when it seems to respect the level for a bar or two but then, instead of the level continuing to hold, price goes right through it.
I'd like to know what different people like to see before deciding that the level is holding sufficiently to warrant a reversal entry.
In other words, as price trades up to an expected R level, what do you need to see before deciding that R is holding sufficiently to justify a short entry?

 

[flier6]

Quote from traderNik:

If you examine the question you asked carefully, you'll see that you are actually asking two different questions.

1. You say that you need to determine whether a level is holding or not. That means that the level has been reached - is it holding?

2. The you say 'Let's say price is trading up toward a resistance level that I think will hold'. Ah! that's different.

See that? Two subtly different things. If you're fading a move, then you're presumably entering when price touches that S/R level you've identified. In that case you can reasonably ask what to look for before entering.

I think I know what your problem is. Perhaps you enter S/R trades and you see price tick above the line you've drawn. Your stops are getting hit, only to find that the price moves in the direction you thought it would. Is that accurate? You're trying to figure out how to avoid this.

You worded it better than I did. I want to know what to look for before entering.
And I get your point about there not being an absolute answer, or a definitive one, but I'm sure people have different "setups" that they look for to give them a bit more confidence that the level is likely to hold. This is what I'm hoping somebody can share with me.