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Price bouncing off support or resistance,your thoughts

  • #1
  • First Post: May 24, 2007 1:32am May 24, 2007 1:32am
I would like to start a discussuion about price movement at support/resistance, Fib and pivot levels.

Time and again I see the price bounce around an important level ,be it pivot, fib, support or resistance.Lots of time it will touch 5 or more times.
At these times I wonder what I should be looking for to try to determine, when it breaks if it will be a continuation or a reversal. I was hoping people might share there thoughts on this .
So the question is......

If price is Bouncing around a support or resistance level,
when it breaks, is it likely to continue through? or reverse .
Please share what you look for to try to predict which way the break will go and why.
  • #2
  • May 24, 2007 3:13am May 24, 2007 3:13am
You need to look for patterns in the price action to confirm the bounce of break, resistance or support only tells you 'something' is going to happen, what that is, nobody knows until it happens.
The breaking of a wave cannot explain the whole sea.
  • #3
  • May 24, 2007 3:24am May 24, 2007 3:24am
Quoting Craig
You need to look for patterns in the price action to confirm the bounce of break, resistance or support only tells you 'something' is going to happen, what that is, nobody knows until it happens.
That's right .....but you can be prepared

Trading is about Averages - You wont be right all the time...

Let's say you are right only 50% of the time -
Can you still be a success ?.......Is this Possible ?........

/////////////////////////////////////////////////////////////
  • #4
  • May 24, 2007 4:25am May 24, 2007 4:25am
Hi randomlight,

This is a great topic and I feel a pretty important one as well.
I developed my own trading strategy around the very thing you are talking about.

I am sure there are many ways to trade around these levels but the way I do it... (and this is just a very breif description because its difficult to explain without using a chart),

Many times as price stalls around one of these levels, it starts to consolidate, when I see that happen I try to identify that consolidation and I wait for a closed candle either above or below resistance or support on a 30 minute chart. If I see that happen, I confirm the closed candle with two indicators (macd histogram and the cci)
If there is no divergence in the indicators, I enter in the direction of the closed candle.

If there is divergence in the indicators, I look to the cci to confirm that divergence and I trade it as a bounce.

And then of course I use the fibonacci retracement levels, and support/ resistance levels to confirm all of this as well as the larger time frames like the 4 hour and daily charts.

If there isn't any consolidation, and price is pulling back after some kind of a move in the market, I look for a candle pattern before entering, at a fibonacci level and or support / resistance level and I confirm it with the two indicators I mentioned above.

There are also a few other things to look for such as psychological levels, but I will leave it at this... to see if this is what you are looking for.

The system I developed is basically pattern recognition. It has worked great for me and I have been doing it for 3 years like this.

I hope some of this helps... If you would like to see some of my charts with what I have described, I can email them to you, just send me a message... I would like to help if I can.

Good Luck,
L.C.
  • #5
  • May 24, 2007 5:55am May 24, 2007 5:55am
Quoting randomlight
I would like to start a discussuion about price movement at support/resistance, Fib and pivot levels.

Time and again I see the price bounce around an important level ,be it pivot, fib, support or resistance.Lots of time it will touch 5 or more times.
At these times I wonder what I should be looking for to try to determine, when it breaks if it will be a continuation or a reversal. I was hoping people might share there thoughts on this .
So the question is......

If price is Bouncing around a support or resistance level,
when it breaks, is it likely to continue through? or reverse .
Please share what you look for to try to predict which way the break will go and why.

Jacko said in his thread that prices are more likely to bounce then penetrate s/r. So my system assumes that. Even when price breaks it, I would wait before entering in the direction of the break until a session has a made anohter close beyond that. Then I'll take a trend trader mindset and follow the price quite conservatively
But, if the price reverts back to s/r zones, then I follow it and follow the price quite closely, maybe with a tp depending on the 10 day ATR and how far the next s/r is.

So in essence, I am a conservative in determining a trend then a ranging market. This is because I know the market (especially forex) do not move in extended trends for too long. So an extra confirmation for a trend would be helpful. Plus you hear that big trends only happen 25-35% of the time, so there's no need to be jumpy about that, because when it happens, it will give you a significant gain.

I'm also realizing that the forex market is NOT like the stock market. Trends in forex cannot last too long since currency imbalance would trigger economic conflict of interest between two countries (i.e usd/yuan) So there's already a bias in big trends in forex. But a stock market is about an individual complany that can grow and grow, and nobody's gonna say hey! stop getting bigger!

So people coming from the stock market think the same market concepts apply in forex, but it's not exactly the same. Taht's my take on it
  • #6
  • May 24, 2007 10:09am May 24, 2007 10:09am
Quoting hilmy83
Jacko said in his thread that prices are more likely to bounce then penetrate s/r. So my system assumes that.
That's one big assumption. Becareful.

The way I personally trade S/R levels is: determine the strongest level where different factors of support or resistance fall in line within a tight area of the chart. Then I wait for price to retrace to that area. I zoom into shorter time frames to read price action there (price patterns, reversals, etc). If the S/R level holds, trade the breakout in the direction of the trend. If the S/R doesnt hold or breakout takes place in the other direction, pass.

And all that ONLY when there is a clear trend in place. No trend, no trade.
  • #7
  • May 24, 2007 10:39am May 24, 2007 10:39am
Quoting hilmy83
I'm also realizing that the forex market is NOT like the stock market. Trends in forex cannot last too long since currency imbalance would trigger economic conflict of interest between two countries (i.e usd/yuan) So there's already a bias in big trends in forex. But a stock market is about an individual complany that can grow and grow, and nobody's gonna say hey! stop getting bigger!
I've read one trading book written by a commodity floor trader. He says that the big difference between stocks and futures/forex is that futures are definitely a zero-sum game because the money/value going in always equals money/value flowing out on the other side. However, with stocks, part of the stock's value has to do with how well the company is doing. More or less value goes into a stock based on how much assets and debt a company has.
  • #8
  • May 24, 2007 3:51pm May 24, 2007 3:51pm
These are some really great replies. I don`t know about anyone else but I have picked up a couple great pointers here alraedy.
Please continue to share everyone thanks
  • #9
  • May 24, 2007 8:43pm May 24, 2007 8:43pm
Quoting WTB
That's one big assumption. Becareful.

The way I personally trade S/R levels is: determine the strongest level where different factors of support or resistance fall in line within a tight area of the chart. Then I wait for price to retrace to that area. I zoom into shorter time frames to read price action there (price patterns, reversals, etc). If the S/R level holds, trade the breakout in the direction of the trend. If the S/R doesnt hold or breakout takes place in the other direction, pass.

And all that ONLY when there is a clear trend in place. No trend, no trade.
I use the weekly/montly bear/bull candle transitions that contain the price. So I assume since they are the top highest timeframes, it would definitely be strong. And my daily chart serves as a lower timeframe to observe a clearer picture of price action

So you assume that price will retrace once it breaks a s/r? Isn't that another assumption just like a price will bounce off s/r? As you can see, we have to make some assumptions in trading. It stems from how we were brought up in the world of trading.
  • #10
  • May 24, 2007 10:00pm May 24, 2007 10:00pm
If the market is going up ... it's ok to assume that price will bounce of support and penetrate resistance.

If it's going down, it's ok to assume price will bounce of resistance and penetrate support.


If you assume the vice-versa, you are going counter-trend.
  • #11
  • May 24, 2007 10:22pm May 24, 2007 10:22pm
Quoting luqmanz
If the market is going up ... it's ok to assume that price will bounce of support and penetrate resistance.

If it's going down, it's ok to assume price will bounce of resistance and penetrate support.


If you assume the vice-versa, you are going counter-trend.
...and if you have a hard time determining market direction, print out the price chart without indicators, hand it to an eight year old, and he will tell you.


HINT: if it starts in the lower left corner and goes to the upper right, it's up; if it stars in the upper left corner and goes to the lower right, it's down.
  • #12
  • Last Post: May 25, 2007 12:42am May 25, 2007 12:42am
I noticed a pattern today with USD/JPY that we see all the time which fits with this discussion.
I am going to post a chart.When you look at the chart you will see three situations where the price hit a resistance , retraced and on the second push broke through the resistance.
Of course we also have a strong uptrend with the pair right now. Waiting for the second push is one way to play resistance and it happens this way a lot one just has to be patient.
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