Drawing correct resistance and support-lines
I injoyed reading your explanation and thoughts. It is very helpful.
Hi Juang,
I was looking back at the posts and just now noticed your question. I did look back to this day (your chart) and noticed that on my chart,the pivot point was right below the breaking point (LTL - demand).
I need to say that you have to pay very close attention to these support, resistance, pivots, fibos because they work as "magnets" for price. That's why I use them as targets. But once you are close to a break or you indeed have a break, have them as "magnets" or limiting lines! A good break happens, in most cases, when you have a large gap between the broken line and the next horizontal line. That's at least my honest opinion.
I noticed that Aediaz tried to warn about a support line right below the break. In that case, he was right. That was a very strong resistance line. On my chart, it was the pivot line.
Here is one of the best short explanations that I have found for S/Rs, pivots, fibos to have so much 'power':
"Support and resistance are levels where the market brings in enough latent volume in order to change the direction of the price. Latent volume is a new concept and I will define it like "placed but not executed orders"; so if you place an order to buy limit at 1.5510 EUR/USD it means that you are creating latent volume, also if you keep in mind that you will buy when the market reaches 1.5510 you create latent volume because the market is actually reduced to feelings (if you feel that you're gonna buy you are already influencing the market by creating latent volume).
With that being said, the question that you posted can be re-formulated like "where is latent volume created?". People tend to create latent volume:
1) where other people have already created latent volume;
2) where it is probable that other people will create latent volume;
The first category is composed of linear support/resistance, which means previous lows/highs which means a level where enough latent volume was created in the past so that the price action reversed at that moment.
The second category is composed of mobile support/resistance such as trendline support/resistance, Gann support/resistance lines, Bollinger Bands, Andrew's Pitchfork support/resistance channels, Fibonacci arcs, together with Fibonacci Retracements + Projections + Extensions. These levels - when touched - allow latent volume to enter the market.
All the above can be considered support/resistance levels. Please note that latent volume is created in both directions, at all the levels mentioned above; that is the reason for which support/resistance eventually fails."
Hope this helps everyone in this thread.
Jupiter.
