indicators to show if support/resistance will hold
- Thread starter pjhaggerty
- Start date
I simply provided an explanation as to why the absence of Sunday's ES price action is not necessary on that chart. The indicators would look the same if SPY was plotted rather than the ES.
I understand it's a different situation for longer term oscillators that analyze historical price action and require all the preceding data points in order to calculate properly. Oscillators are a measuring device like a ruler, the amount of price movement necessary in the ES to move an oscillator from say a -20 to a +20 reading on your charts is related to how much price movement occurred in the ES over some period of time - and you don't want gaps messing up your calculation. The issue which has seemed to touch a nerve is whether any reading from an oscillator or other technical indicator should be called "support" or "resistance."
Lets assume each of the last 10 times you saw a +20 reading on an oscillator the market reversed. Can we call a +20 reading resistance? An analogy would be dribbling a basketball. If I hold my hand 3 feet off the ground and dribble the ball 100 times in a row can anyone assume my hand will be at the same level on the next dribble. Does the ball reaching 35 inches from the ground on the next bounce mean that resistance is only 1" away because it was there 100 times before? Do I need to see the ball reverse direction 2-3-4 inches before I can say that there was resistance as predicted, and by that point did the + 20 reading mean something or am I relying on the 4 inch retracement for the determination.
The longer term chart you posted demonstrates this phenomena perfectly well. I re-attached it here with a couple of red lines to show you what I mean. I see a long series of small cycles generating fine triggers for your signals. The problem is that when the strong rally occurred, the move quickly exceeded the oscillator's capacity resulting in a false setup it appears, confirmed by the longer term oscillator rolling over. No buy signal was generated because the slow oscilliator went into a slow decline as the market continued to rally. A few days later the same thing happened to even the very slowest oscillator line. Obviously there is an oscillator setting that will work, but how many versions are worth watching all the time and how do you know ahead of time which settings will work tomorrow.
An oscillator can properly tell you if the ball is 35, 36, or 40 inches off the ground, or X points from the low, but it doesn't actually indicate anything about where the "hand" is actually located, the actual sellers that will block the market from continuing to rise.
This is just math and I hope no one is offended by math.
Isn't the hand itself the "resistance", and if any hand shows up with a fist full of futures, options, stocks, or etf's at any particular level won't they have the same effect. This is what I was trying to explain distinguishes technical analysis from the quantitative analysis done by programetrics. They look at all the trading activity actually occurring on many exchanges and if they see the fist of a heavyweight coming to impact the S&P 500 their indicators show it regardless of the price level which it occurs, that is what I would refer to as actual resistance or support. Watching and analyzing all the markets that can impact the big indexes looking for the big fists of hedge funds is just not simple and I don't mind spending money for the assistance when it helps me know when to duck and avoid getting clobbered.
I understand it's a different situation for longer term oscillators that analyze historical price action and require all the preceding data points in order to calculate properly. Oscillators are a measuring device like a ruler, the amount of price movement necessary in the ES to move an oscillator from say a -20 to a +20 reading on your charts is related to how much price movement occurred in the ES over some period of time - and you don't want gaps messing up your calculation. The issue which has seemed to touch a nerve is whether any reading from an oscillator or other technical indicator should be called "support" or "resistance."
Lets assume each of the last 10 times you saw a +20 reading on an oscillator the market reversed. Can we call a +20 reading resistance? An analogy would be dribbling a basketball. If I hold my hand 3 feet off the ground and dribble the ball 100 times in a row can anyone assume my hand will be at the same level on the next dribble. Does the ball reaching 35 inches from the ground on the next bounce mean that resistance is only 1" away because it was there 100 times before? Do I need to see the ball reverse direction 2-3-4 inches before I can say that there was resistance as predicted, and by that point did the + 20 reading mean something or am I relying on the 4 inch retracement for the determination.
The longer term chart you posted demonstrates this phenomena perfectly well. I re-attached it here with a couple of red lines to show you what I mean. I see a long series of small cycles generating fine triggers for your signals. The problem is that when the strong rally occurred, the move quickly exceeded the oscillator's capacity resulting in a false setup it appears, confirmed by the longer term oscillator rolling over. No buy signal was generated because the slow oscilliator went into a slow decline as the market continued to rally. A few days later the same thing happened to even the very slowest oscillator line. Obviously there is an oscillator setting that will work, but how many versions are worth watching all the time and how do you know ahead of time which settings will work tomorrow.
An oscillator can properly tell you if the ball is 35, 36, or 40 inches off the ground, or X points from the low, but it doesn't actually indicate anything about where the "hand" is actually located, the actual sellers that will block the market from continuing to rise.
This is just math and I hope no one is offended by math.
Isn't the hand itself the "resistance", and if any hand shows up with a fist full of futures, options, stocks, or etf's at any particular level won't they have the same effect. This is what I was trying to explain distinguishes technical analysis from the quantitative analysis done by programetrics. They look at all the trading activity actually occurring on many exchanges and if they see the fist of a heavyweight coming to impact the S&P 500 their indicators show it regardless of the price level which it occurs, that is what I would refer to as actual resistance or support. Watching and analyzing all the markets that can impact the big indexes looking for the big fists of hedge funds is just not simple and I don't mind spending money for the assistance when it helps me know when to duck and avoid getting clobbered.
There is no difference in reading a longer term chart than an intraday if the chart parameters are constructed consistently.
The extremes on the charts are at +/-10 and have been confirmed through almost 7 years of real-time testing.
The reading from the indicator confirms the price oscillations of resistance and support not the other way around. Price Resistance and support are natural is read on a naturally constructed chart.
The basketball is an ok example but not perfect. If the basketball maintains a consistent level of air pressure, the environment that surrounds the basketball is a constant and the force that is subjected on the ball is a constant then in this real word scenario the level of rise can be read at the point of impact and the point of fall can be read at the apex of the rise (point of repeated impact).
A chart isn't in such a controlled environment though. You are dealing with random chaos but even chaos can be read in the right environment. One simply needs to read Trading Oscillations (middle indicator where points where price will reverse) and Strength Oscillations (bottom indicator where one sees the ebb and tide of the strength of that same chart moving from longer term Resistance and Support.
You didn't read the rule and apply it to the chart because you misread the chart completely. Don't feel bad, most traders, especially ones with a lot of experience don't have the patience to follow a new rule set.
Math is great but it can't work with any consistency in a variable environment. Any environment where the problem set is constantly changing with no fixed parameters, no fixed set of math can be applied with any ongoing success. This is why systems work for a while and then evaporate. If you eliminate the variables you eliminate a vast amount of the inconsistency in your results.
You spend money not to get clobbered and I've spent 15 years figuring out what the big fisted hedge funds are too arrogant to learn. I just learned to read a chart in real time, am damn consistent and don't have to worry about what I do evaporating.
You like what you do and I have many years of consistent success doing what I do so we move on.
Great Trading to you.
agree.
like i said before, look at the 100, and 200 sma's on your daily charts. They're pretty strong on 1hr too.
The whole point though is, as others have said before; nothing will work all the time.
try to figure this out and you'll go crazy. You need to understand that an indicator will ALWAYS give a late signal because its showing you what already happened. This is where reading the price action comes into play, because if you can read the s/r just from price alone, then some would argue that you dont need indicators in the first place.
Quote from obamapips:
Hi Prof,
How do i know whether my data in my chart are correct or not ?
No datafeed is perfect but make sure you're getting all of the tick data and not just a snapshot or segmented data like some broker data services provide.
IMHO esignal offer the best value for Data Only, then CQG but they are out of line with their prices. there are a number of up and coming data providers out there so just do your research for the best product and value.
What do you think "price action" is based upon if not past data ie what has already happened ? That is the premise of TA - that something can be inferred about future price from previous price.
And "indicators" or rather oscillators are nor always late - they can be "early" eg in a strong trend.
There is not indicator that I know of. I personally base my opinion on how stable a support or resistance line is off a couple of factors. These are distance, time and prior touches.
By distance I mean is once a S/R line is breached how much further has price moved beyond that level and once the breach was made. If a resistance line is at say $50 and the price moves up to $50.10 I would not consider that $50 mark strong support. If it moves up to $60, then that $50 mark looks a bit stronger.
How much time has elapsed is just as it sounds. If price has been above prior resistance for 30min it will be less likely to hold as support than if it's been above that mark for 2 weeks.
Prior tests is simple has this level ever been support or resistance before? If a stock moves up through a $50 resistance level but that level was also a support level at some time in the past then it is more likely to hold.
None of this is a guarantee that S/R will hold. It just helps to determine the probability of it holding.
If you can read the tape, as price approaches S/R you can see it (the display) thicken up. As it tests S/R you watch to see whether they can move through and activate the stops. As one side tries to assert themselves its up to the other side to absorb the supply. If they get overwhelmed, stops get hit, momentum snowballs and price moves through S/R. If not price fails as traders come in (more initiative action) and take it back.
For those with the ability to think critically about the subject, this means that if you can read the tape, you can SEE whether support/resistance will hold AS IT HAPPENS.
If you can't read and evaluate the tape, you're screwed (as are most retail traders) and you have to react to what happens after price either breaks through or fails.
There's no indicator that will do it for you....Sorry.
For those with the ability to think critically about the subject, this means that if you can read the tape, you can SEE whether support/resistance will hold AS IT HAPPENS.
If you can't read and evaluate the tape, you're screwed (as are most retail traders) and you have to react to what happens after price either breaks through or fails.
There's no indicator that will do it for you....Sorry.