Studies on Support and Resistance?

Overnight said:
In my limited time observing futures charts, I've been able to discern that S/R lines are like Schrodinger's Cat and are everywhere on a chart but do not exist, until the lines are "observed" and the wave function of the line collapses to come into being. This usually takes a minimum of 3 tests before traders finally "observe" that particular point and then treat it as such, and trade it that way. So it becomes a self-fulfilling prophecy.

I don't have my trading machine up to post some simple examples, but there have been days recently where it the lines were tested over and over again until it breaks. Usually happens from noon to 2PM ET.

I don't have any links to studies on it, but it IS an observable phenomenon. Trouble is...I can't see how it could be used to predict any possible moves beyond that current day's action, because the farther out you go in time, the greater the chance the lines will be breached. That just can't be actionable.
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Thats 5pm tom7pm, thats lunch time, markets too slow for me, I hit the gym,get back for last 2 hours into the close.

Any point you can find where your risk is less than your upside and you win rate 50/50 is valid, its all about containing that risk.
 
gaussian said:
I'd be interested in hearing thoughts and especially links to studies. Keep in mind I'd like them to have some amount of scientific thought
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You would take any of such studies seriously? Seriously enough to put money on it?
 
qlai said:
You would take any of such studies seriously? Seriously enough to put money on it?
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let me take the liberty to give my perspective.

e.g. there are repeatable patterns... buying on retest of panic bottoms I have been for the past 10 years.. (aka BTFD)..with the conviction that stocks are way under valued, compared to other asset classes.

and for 'making it in the stock market'... you really need just 1 super cycle like we've had since 2009... now you could say that since 2009, buying anywhere would have been good also.... that is true... 70% of my accumulations are not market-timed.. i.e. if the portfolio is cash heavy I just buy blind.... the other 30% is timed..
 
qlai said:
You would take any of such studies seriously? Seriously enough to put money on it?
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Honestly, I think a lot of edge can be taken from modifications of papers. I've read enough papers in my day to know a decent one. Certain things like proper experiment design, sample size, use of p-values, hypotheses, etc are good indicators.

I think many of the papers we read on machine learning and statistical techniques like ARIMA prediction are very poorly designed. Many times they don't even backtest properly. I figured I would take a step back and see if there was anything useful contained inside of TA trendlines, despite how subjective they are.
 
Some good responses here, I just want to add the obvious that different assets/instruments behave differently than others. In my non-objective observations it seems that bonds/rates are the easiest to use S/R on, stocks are the hardest as they mostly trend in one direction for a long time. A stock's "equilibrium" value can continually increase or decrease without a substantial amount of mean reversion due to fundamentals of the business. A stock's mean reversion is towards/away from valuation rather than absolute price, while rates either just move slow enough or generally tend to mean revert much more and revert to/away from absolute price(rate).

This is of course in my very unscientific opinion.
 
Overnight said:
In my limited time observing futures charts, I've been able to discern that S/R lines are like Schrodinger's Cat and are everywhere on a chart but do not exist, until the lines are "observed" and the wave function of the line collapses to come into being. This usually takes a minimum of 3 tests before traders finally "observe" that particular point and then treat it as such, and trade it that way. So it becomes a self-fulfilling prophecy.

I don't have my trading machine up to post some simple examples, but there have been days recently where it the lines were tested over and over again until it breaks. Usually happens from noon to 2PM ET.

I don't have any links to studies on it, but it IS an observable phenomenon. Trouble is...I can't see how it could be used to predict any possible moves beyond that current day's action, because the farther out you go in time, the greater the chance the lines will be breached. That just can't be actionable.
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This is the first time I heard of S/R explained in terms of quantum theory - I bet "scientific thought experiment" wasn't what OP was expecting :D.
 
dozu888 said:
I only trade stocks.... commodities futures are different.

for stocks... there is no such thing as resistance... conventional method to draw a line at the top is simply silly... 1 guy in the world trade at that price.. and you know why that 1 unlucky bastard bot the top? because my pro boys had a secret meeting and decided that day is when they'd knock it down with some narratives pushed in the media machine they control.

the support has a bit more significance... because it's not pre-planned with secret meetings. usually on the way down it's chaotic and emotional and all of a sudden enough people decided the price is too low and has produced great value and they jump in.... it may get retested once or two just to clean out the lucky bottom fishers, then the price is ready to race to higher highs.

I think the key is really to understand the psychology behind the formation... especially on the bottoms... then you can take advantage. e.g. enter on a retest.
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%%
True, doz888;
mostly true in bull market UpTrends.
NOT much truth[ support] there in a bear market @ all, as in OCT, NOV,DEC 2018/200 day moving average. For example SPY,QQQ.:cool::cool:, :cool::cool::cool::cool::cool::cool:
 
gaussian said:
I am beginning to read back through Technical Analysis of the Financial Markets. I initially shirked TA as glorified tea leaf reading, but I feel like there is some amount of techniques that work objectively. The trouble is finding them.

To me, it seems S/R lines are fairly significant, though I have no objective evidence. Before embarking on a large study of the S&P 500 stocks over the last 10 years - has anyone seen/read any documented, repeatable studies on the predictability of future price moves based on support and resistance?

Of all technical analysis techniques - these have a fairly obvious hypothesis (and are therefore testable): support and resistance form psychological points in the market people are afraid to go beyond. Alternatively, they represent the absolute limits of the supply/demand curve of the underlying over a time t.

I'd be interested in hearing thoughts and especially links to studies. Keep in mind I'd like them to have some amount of scientific thought - none of this "check out my forex blog where I show how to make INSTANT millions with S/R!"
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hi. you put it as traders are using only support and resistance in the decision of getting into a position. I'm sure that this is not what the author thought about. a good trader use more indicators and technics before he press the sell/buy button so there for he doesn't has to fear the s/r lines.
 
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