I was taking to another trader about how I trade breakouts. I zoom my daily charts out as far as I can so I can see the largest S/R levels, and this is what he said:
" suppose the stock breaks out and you are looking for a target to exit your trade and you see a congestion zone that occurred 1 year ago where potential "get out even" sellers, as the theory suggests, exist and will sell their stock forcing the stock back down. Roll that congestion zone out a few more years and it become less and less significant. As time elapses points of reference that exist on a chart become less significant and can be completely discarded if enough time has passed. Edwards and Magee talk about this concept in their book. It's an important concept and experience has taught me it's something to pay attention to. "
His statement goes against everything I thought was true about S/R... I always thought that the MORE times price hits and bounces off a certain level, the MORE important that level becomes. John Murphy's book also states this, however Edwards and Magee have different opinions?
" suppose the stock breaks out and you are looking for a target to exit your trade and you see a congestion zone that occurred 1 year ago where potential "get out even" sellers, as the theory suggests, exist and will sell their stock forcing the stock back down. Roll that congestion zone out a few more years and it become less and less significant. As time elapses points of reference that exist on a chart become less significant and can be completely discarded if enough time has passed. Edwards and Magee talk about this concept in their book. It's an important concept and experience has taught me it's something to pay attention to. "
His statement goes against everything I thought was true about S/R... I always thought that the MORE times price hits and bounces off a certain level, the MORE important that level becomes. John Murphy's book also states this, however Edwards and Magee have different opinions?