Support and resistance
- Thread starter bobvago
- Start date
If you decide to use the search info mentioned in my prior message post...you'll discover lots of individuals that use support/resistance in their trading.
Just in case, here's a few Google links that you can use to begin your research
@ https://www.google.com/search?q=support+resistance+trading
@ https://www.google.com/search?q=support+resistance+analysis
If you're more the Youtube type of person
@ https://www.youtube.com/results?search_query=support+resistance
If you're crazy about Elitetrader.com, you can use its own search
@ https://www.elitetrader.com/et/search/6681827/?q=support+resistance
10 years of so ago...traders would just come here at ET and discuss the in-depth information of their trade method involving support/resistance with tons of chart examples. Yet, that type of discussions eventually stop because too many arguments by those that stated their way is the only right way, too many personal attacks and too many newbies not willing to do their own research instead of acting like they wanted to be spoon fed the information.
That's why I included the ET link above. You can still read those old threads if you want. Also, be aware that many use s/r analysis but don't actually use those words...they may use words like S1, R1 in their Pivot Point discussions. Thus, you can use those words too in your Google, Youtube and Elitetrader.com searches.
Simply, do your own research because all the information is already freely posted...no new wheel to re-invent. After you decide on one way for your s/r analysis and one way for your trade signal (may be better to have several different types of trade signals for different types of market conditions) to use with s/r analysis...backtest the hell out of it.
If you don't like the backtest results...start again with another way of using s/r analysis and different trade signal or create (re-invent) your own special proprietary way.
Yet, if you're the lazy type...use a charting program that computes s/r levels for you. Usually those software also have some canned trade signals for you to use and you can then combine the canned trade signal with s/r levels...most charting software today have them included. They sometimes refer to these already coded info as part of the bells & whistles.
Once again, back test it then simulate trade it for a long time to see if you like the results.
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At this stage, I think it's not going to be easy at all to add much of any value to wrbtrader's two very helpful posts above, but for what it's worth (if anything) I'll offer my own perspective's answers to your original questions ...
It's clear from reading the forum (and any other forum) that very many traders do.
I identify swings-high and -low on timeframes higher than the one on which I'm trading, transfer them to that chart, and add current/recent ones, typically displaying them with differently coloured lines.
For my own purposes, I give most weight to (a) more recent ones and (b) multiple-touch ones, because my experience has shown me that these are the "historical" areas of S/R which are more likely to be repeated as "future" S/R.
I find it helpful to distinguish conceptually between "historical S/R" and "future S/R" rather than lumping them together as a more general/abstract category of "just S/R".
I tend to look at them as "approximate zones" rather than as "precise levels".
Parts of these questions are (for me) less strongly correlated to S/R than the questions above.
I enter according to various specific set-ups which arise from specific price action patterns, which are themselves all related to recent S/R. My precise entry is usually a tick or two above/below something you might call a "signal bar" which is part of a broader price action pattern.
I often avoid potential entries to trades which seem quite likely to me to encounter prompt, probable resistance (in other words, I don't like entering long just under what seems to me to be an area of reasonably probable future resistance, or short just above reasonably probable future support).
I sometimes add to winning trades, because the fact that the price has moved in "my direction" sometimes strengthens my reason for being in the trade and increases the positive expectancy of the funds risked.
I exit typically in either two or three stages ("scaling out") according to the current volatility and the positioning of my initial stop-loss (also itself related to the current volatility).
I sometimes trail my stop-loss manually on the part(s) of the trade still remaining open after partial closure, re-positioning it just above/below the most recently formed swing-high/low - that's S/R-related, too, of course.
Occasionally I use a line/zone of likely future S/R as a final exit (on the grounds that I can always decide to re-enter, if it's "unexpectedly" breached).
I'm interpreting your own wording above (perhaps mistakenly, perhaps unfairly) as coming from a perspective along the lines of trades having "specific indicator-determined signals, which are specific entries for trades" and that isn't a perception I share in my own trading. I tried that approach for 2-3 years but never found a way to become steadily profitable with it. I have an "overall bias" (by which I mean "times to try to identify only long/short trades from price action patterns) so that I'm almost always trading in the same direction as a longer-term trend. (I do also trade one "reversal pattern" of which that isn't always true, though it often is.)
I don't use indicators now, but if I were using them, it would be only to identify my "overall bias", not to determine entries or exits. All the long-term profitable traders I know (and know of), myself, who do use indicators, are using them just for "bias" rather than as trade entry signals. There may be ways of doing that profitably, but if so, they're outside my own experience.
I strongly endorse wrbtrader's advice above about doing your own research, backtesting and forward-testing. It's not trivial advice, and in my opinion some statistical/probabilistic understanding is a prerequisite to doing it adequately/productively (which is where/why many people go wrong with it, in my view, by trying to do it without first having learned how to do it reliably, a skill-set none of us was born with and one that relates, after all, to a sometimes very counter-intuitive subject).
Whether any of this personal perspective is actually helpful to you is another matter.
It's clear from reading the forum (and any other forum) that very many traders do.
I identify swings-high and -low on timeframes higher than the one on which I'm trading, transfer them to that chart, and add current/recent ones, typically displaying them with differently coloured lines.
For my own purposes, I give most weight to (a) more recent ones and (b) multiple-touch ones, because my experience has shown me that these are the "historical" areas of S/R which are more likely to be repeated as "future" S/R.
I find it helpful to distinguish conceptually between "historical S/R" and "future S/R" rather than lumping them together as a more general/abstract category of "just S/R".
I tend to look at them as "approximate zones" rather than as "precise levels".
Parts of these questions are (for me) less strongly correlated to S/R than the questions above.
I enter according to various specific set-ups which arise from specific price action patterns, which are themselves all related to recent S/R. My precise entry is usually a tick or two above/below something you might call a "signal bar" which is part of a broader price action pattern.
I often avoid potential entries to trades which seem quite likely to me to encounter prompt, probable resistance (in other words, I don't like entering long just under what seems to me to be an area of reasonably probable future resistance, or short just above reasonably probable future support).
I sometimes add to winning trades, because the fact that the price has moved in "my direction" sometimes strengthens my reason for being in the trade and increases the positive expectancy of the funds risked.
I exit typically in either two or three stages ("scaling out") according to the current volatility and the positioning of my initial stop-loss (also itself related to the current volatility).
I sometimes trail my stop-loss manually on the part(s) of the trade still remaining open after partial closure, re-positioning it just above/below the most recently formed swing-high/low - that's S/R-related, too, of course.
Occasionally I use a line/zone of likely future S/R as a final exit (on the grounds that I can always decide to re-enter, if it's "unexpectedly" breached).
I'm interpreting your own wording above (perhaps mistakenly, perhaps unfairly) as coming from a perspective along the lines of trades having "specific indicator-determined signals, which are specific entries for trades" and that isn't a perception I share in my own trading. I tried that approach for 2-3 years but never found a way to become steadily profitable with it. I have an "overall bias" (by which I mean "times to try to identify only long/short trades from price action patterns) so that I'm almost always trading in the same direction as a longer-term trend. (I do also trade one "reversal pattern" of which that isn't always true, though it often is.)
I don't use indicators now, but if I were using them, it would be only to identify my "overall bias", not to determine entries or exits. All the long-term profitable traders I know (and know of), myself, who do use indicators, are using them just for "bias" rather than as trade entry signals. There may be ways of doing that profitably, but if so, they're outside my own experience.
I strongly endorse wrbtrader's advice above about doing your own research, backtesting and forward-testing. It's not trivial advice, and in my opinion some statistical/probabilistic understanding is a prerequisite to doing it adequately/productively (which is where/why many people go wrong with it, in my view, by trying to do it without first having learned how to do it reliably, a skill-set none of us was born with and one that relates, after all, to a sometimes very counter-intuitive subject).
Whether any of this personal perspective is actually helpful to you is another matter.
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The following is a posting I did in the thread https://www.elitetrader.com/et/thre...-work-and-some-not.302237/page-7#post-4323283 last year on the subject of S/R, which may or may not be of interest.
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More than the question of working or not, the proper identification of support and resistance should be of greater concern. I have so often seen what IMHO I feel is one basic misinterpretation of support and resistance that would lead to failed or missed trades.
As in the attached, so many people refer to the lows in a downtrend, B, as support, such as S2, and the highs in an uptrend, A, such as R1, as resistance. The moves to S1 and S2 are completely opposite, with that to S2 being a move in the primary direction and that to S1 being a reaction. Therefore, the moves following S1 and S2 can not be expected perform equally. So for those who employ the 'buy at support and sell at resistance' tactic, treating both S1 and S2 as support will, as the OP questioned, be hit and miss. Also, for example, regarding R1 as resistance, rather than just the last high in the primary direction, may cause hesitation to buy before R1 is penetrated, resulting in a missed trade.
Additionally, using the white line as an example, looking for support at a low in the previous trend, S3, will not have a high probability of success as the forces at work at that price level are the opposite.
While the above is just basic TA, I've seen such misinterpretations so often that I thought I'd give my 2 cents, even though few will agree or be interested.
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More than the question of working or not, the proper identification of support and resistance should be of greater concern. I have so often seen what IMHO I feel is one basic misinterpretation of support and resistance that would lead to failed or missed trades.
As in the attached, so many people refer to the lows in a downtrend, B, as support, such as S2, and the highs in an uptrend, A, such as R1, as resistance. The moves to S1 and S2 are completely opposite, with that to S2 being a move in the primary direction and that to S1 being a reaction. Therefore, the moves following S1 and S2 can not be expected perform equally. So for those who employ the 'buy at support and sell at resistance' tactic, treating both S1 and S2 as support will, as the OP questioned, be hit and miss. Also, for example, regarding R1 as resistance, rather than just the last high in the primary direction, may cause hesitation to buy before R1 is penetrated, resulting in a missed trade.
Additionally, using the white line as an example, looking for support at a low in the previous trend, S3, will not have a high probability of success as the forces at work at that price level are the opposite.
While the above is just basic TA, I've seen such misinterpretations so often that I thought I'd give my 2 cents, even though few will agree or be interested.
I trade credit spreads, so price movement isn't my friend, and thus s/r levels are always something I'm conscious of, but there's no specific trade I do based on it. I'll sometimes trade the move away from s/r anticipating it's return, or sometimes I'll have my short strike at s/r anticipating it will stay.
The only trade I do actually based on s/r is a very specific signal that's forward looking to s/r...basically anticipating where price action is likely. I'll turn a bullish put spread into an iron condor with the call short strike being ATM at resistance (sometimes I'll even close the bullish put spread). Because the particular move tends to coincide with calls being bid up, I usually have premium within a few pennies of the spread which gives these a ridiculous win rate.
The only trade I do actually based on s/r is a very specific signal that's forward looking to s/r...basically anticipating where price action is likely. I'll turn a bullish put spread into an iron condor with the call short strike being ATM at resistance (sometimes I'll even close the bullish put spread). Because the particular move tends to coincide with calls being bid up, I usually have premium within a few pennies of the spread which gives these a ridiculous win rate.
learner2007...thanks for the thread reminder. Its one of those threads I wanted to read but did not due to illness soon after that thread was started by iamnewuser911.
xela...your general explanations and some questions prior by bobvago prompt me to research bobvago post history. He arrived at this forum and soon after (within a few message posts) started asking or looking to be "mentored" @ https://www.elitetrader.com/et/threads/mentor.310633/
I now think that's the reason behind these types of questions in this thread.
How do you enter and exit?
What is your trade signal? MACD?
He's looking for someone to mentor him at Elitetrader.com via message posts. I have a strong opinion about such. It can't be done successfully although many newbies try such route...mentoring is not done via message posts.
Mentoring is just one of those things I believe can only be done in person (side by side) while trading from a live account (real money trading). There's just too much variables involved in trading that can't be covered/shared in message posts...many of these variables often involve personal issues that greatly impact the results of a trader. Personal issues involving the persona of the trader.
That leads into the area of automation trading, algorithm trading by some that get involved with such to remove a trader's personal issues as a factor in the trading results. Usually those that take this route are experience traders and at least bright enough to understand automation, algorithm trading.
Oddly, the thread starter bobvago mentions he was involved in algorithm trading (he built his own system) but it just didn't work.
Simply, seems to me that bobvago is an experience trader (just not successful) and I would think he'll be in the "algorithm trading threads" asking for help with his algorithm trading system instead of starting threads about simple topics like s/r analysis that are easily researched.
Algorithm threads @ https://www.elitetrader.com/et/forums/automated-trading.48/
xela...your general explanations and some questions prior by bobvago prompt me to research bobvago post history. He arrived at this forum and soon after (within a few message posts) started asking or looking to be "mentored" @ https://www.elitetrader.com/et/threads/mentor.310633/
I now think that's the reason behind these types of questions in this thread.
How do you enter and exit?
What is your trade signal? MACD?
He's looking for someone to mentor him at Elitetrader.com via message posts. I have a strong opinion about such. It can't be done successfully although many newbies try such route...mentoring is not done via message posts.
Mentoring is just one of those things I believe can only be done in person (side by side) while trading from a live account (real money trading). There's just too much variables involved in trading that can't be covered/shared in message posts...many of these variables often involve personal issues that greatly impact the results of a trader. Personal issues involving the persona of the trader.
That leads into the area of automation trading, algorithm trading by some that get involved with such to remove a trader's personal issues as a factor in the trading results. Usually those that take this route are experience traders and at least bright enough to understand automation, algorithm trading.
Oddly, the thread starter bobvago mentions he was involved in algorithm trading (he built his own system) but it just didn't work.
Simply, seems to me that bobvago is an experience trader (just not successful) and I would think he'll be in the "algorithm trading threads" asking for help with his algorithm trading system instead of starting threads about simple topics like s/r analysis that are easily researched.
Algorithm threads @ https://www.elitetrader.com/et/forums/automated-trading.48/
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Whoa!!At this stage, I think it's not going to be easy at all to add much of any value to wrbtrader's two very helpful posts above, but for what it's worth (if anything) I'll offer my own perspective's answers to your original questions ...
It's clear from reading the forum (and any other forum) that very many traders do.
I identify swings-high and -low on timeframes higher than the one on which I'm trading, transfer them to that chart, and add current/recent ones, typically displaying them with differently coloured lines.
For my own purposes, I give most weight to (a) more recent ones and (b) multiple-touch ones, because my experience has shown me that these are the "historical" areas of S/R which are more likely to be repeated as "future" S/R.
I find it helpful to distinguish conceptually between "historical S/R" and "future S/R" rather than lumping them together as a more general/abstract category of "just S/R".
I tend to look at them as "approximate zones" rather than as "precise levels".
Parts of these questions are (for me) less strongly correlated to S/R than the questions above.
I enter according to various specific set-ups which arise from specific price action patterns, which are themselves all related to recent S/R. My precise entry is usually a tick or two above/below something you might call a "signal bar" which is part of a broader price action pattern.
I often avoid potential entries to trades which seem quite likely to me to encounter prompt, probable resistance (in other words, I don't like entering long just under what seems to me to be an area of reasonably probable future resistance, or short just above reasonably probable future support).
I sometimes add to winning trades, because the fact that the price has moved in "my direction" sometimes strengthens my reason for being in the trade and increases the positive expectancy of the funds risked.
I exit typically in either two or three stages ("scaling out") according to the current volatility and the positioning of my initial stop-loss (also itself related to the current volatility).
I sometimes trail my stop-loss manually on the part(s) of the trade still remaining open after partial closure, re-positioning it just above/below the most recently formed swing-high/low - that's S/R-related, too, of course.
Occasionally I use a line/zone of likely future S/R as a final exit (on the grounds that I can always decide to re-enter, if it's "unexpectedly" breached).
I'm interpreting your own wording above (perhaps mistakenly, perhaps unfairly) as coming from a perspective along the lines of trades having "specific indicator-determined signals, which are specific entries for trades" and that isn't a perception I share in my own trading. I tried that approach for 2-3 years but never found a way to become steadily profitable with it. I have an "overall bias" (by which I mean "times to try to identify only long/short trades from price action patterns) so that I'm almost always trading in the same direction as a longer-term trend. (I do also trade one "reversal pattern" of which that isn't always true, though it often is.)
I don't use indicators now, but if I were using them, it would be only to identify my "overall bias", not to determine entries or exits. All the long-term profitable traders I know (and know of), myself, who do use indicators, are using them just for "bias" rather than as trade entry signals. There may be ways of doing that profitably, but if so, they're outside my own experience.
I strongly endorse wrbtrader's advice above about doing your own research, backtesting and forward-testing. It's not trivial advice, and in my opinion some statistical/probabilistic understanding is a prerequisite to doing it adequately/productively (which is where/why many people go wrong with it, in my view, by trying to do it without first having learned how to do it reliably, a skill-set none of us was born with and one that relates, after all, to a sometimes very counter-intuitive subject).
Whether any of this personal perspective is actually helpful to you is another matter.
Let me in the club algofy. Lol
This isn't likely to be an effective strategy because what makes a s/r level is exactly what price players don't want...the price settling in for a while. So you'd be stuck at an inflection point, exposed to the market too long based on your expected profit. The move from s/r tends to be relatively large and concerted. And since price is as likely to go up as down, you're gambling but don't know the size of your bet.
Compound that with psychology, you're likely to hold the loser because of your preconception of the s/r level (that the price is coming back), and dump your winners too soon for the same reason, even though that move could be the departure from s/r and continue. So unless you have superhuman self control, you're using a 50-50 strategy where losers are likely to be bigger than winners.