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True support and resistance?

  • #1
  • First Post: Jan 9, 2009 4:12pm Jan 9, 2009 4:12pm
I wanted to post a thread to try and find the answer to this question
'What is true support and resistance?'
I have come accross many methods of finding support and resistance but the trouble is so many of them dont really work that effectivly and can have you questioning the direction of the market on two things:
breakout and bounce.

I see this because quite often price will break a support or resistance level, come back and go other way. Or somtimes break cross again and cross again.
Or it will bounce after small retracement it will either 'creep' along it and break or 'smash' through it.

I think a good way to determining true or maybe I should say strong support and resistance, wud be to think about traders phycology around these points.
Why wud price break this level and not continue?
What is going on with orders around here?
If anyone has any input it wud be appreciated, maybe we can agree on some truths.
  • #2
  • Jan 9, 2009 4:21pm Jan 9, 2009 4:21pm
Here just two methods out there.
The first image shows typical trendline where the line is drawn from the high of a wave to another high.

The second actually ignores the high or low, and finds a candle where:
1. Support has two bear candles before it and..
2. two bull candles after it.
The opposite is true for resistance.

Interesting thing to note on these particular examples is the typical way of drawing them price breaks through and then comes back again (look at the highlighted area).
On the second method price has broken through and has pulled back but not broken through ( as of yet anyway).
Attached Image(s) (click to enlarge)
Click to Enlarge Name: fib10.gif Size: 32 KB
Click to Enlarge Name: fib9.gif Size: 29 KB
  • #3
  • Jan 9, 2009 4:26pm Jan 9, 2009 4:26pm
I thought about this a couple months back when I wrote a S/R Indicator.

It's possible that there are formulas that can be used with slopes of lines and things like that. But, it really stuck me more that this is an Occom's Razor kind of thing (the simples answer is the most likely). So, why not just look at the last X periods and find the most common price?

I put all of my prices in an array (high & low) and then just counted to see which ones were the most common. You can fudge some there and look for prices within 2 pips of each other to add to the commonality.

If we agree that price is an accurate measure of market sentiment, then the "true" S/R is simply prices that (on multiple occassions) the market has reacted to.
  • #4
  • Jan 9, 2009 4:27pm Jan 9, 2009 4:27pm
message to the admin:
Why the hell was this thread moved when you got other 'junk' threads about 'why indiators will fail you' and 'trending or consolidating market?' which actually is about programming not trade discussion?
This is much more relavent to trade discussion than a lot already in there so why move it?
  • #5
  • Jan 9, 2009 4:29pm Jan 9, 2009 4:29pm
Fry,

So many people will espouse the virtues of support and resistance and its usefullness in trading or determining target levels for entry/exit or take profit. However there really is no such thing from the market's point of view. Most of these levels are never clearly defined, and should be taken more as "areas of congestion" rather than clear trading signals. In fact when it boils down to it, Support and Resistance are just lines that people use to clutter up their charts.

These lines only have meaning for the individual who drew them. Thus no two support/resistance lines are really the same between one trader and the next. The same applies to fibonacci, and pivot lines. If enough traders participating in the market at the proper time believe strongly enough they may become self fulfilling prophecies but nothing more than that.

That being said, do I personally use support and resistance? Yes! But not in the way I read about here on these forums. I use support and/or resistance as indicators of where to place protective stops. My entry mechanism (which to date is between 75-85% accurate), ignores these imaginary lines.

After an entry takes place I will place my stop on the other side of the nearest line (support for longs/resistance for shorts). Then I will observe the price action as it approaches the next line. If it shoot through, as if it wasn't there...which indeed from the market's point of view it doesn't exist...I will move my stop up to that level and lock in pips. Then as you've observed, if the market falls back to this level, I get stopped out in profit. If the market keeps going my way, I will keep moving stops up line with these "lines" until I'm stopped out. This allows you to use these levels to your advantage and not be "victimized" by them.

I hold that they are valueless for entry or exit. I'm sure there are many who will disagree and I'm quite positive you will hear these trader's battle stories of their accuracy in psyhology, or market sentiment...rubbish...its just a line you put on your chart to make YOU feel better.

The market will do, what the market does.
  • #6
  • Jan 9, 2009 4:32pm Jan 9, 2009 4:32pm
longtobefree, that is an excellent point. Looking at where price 'reacts' more.
Its got to have more value more people must be reacting to it.
Another point I wanted to make is with patterns.
Quite often you only notice a pattern onces its already formed meaning you miss out on some great opportunities. It all ties in with hindsight is a beautiful thing, but not practical.
  • #7
  • Jan 9, 2009 4:46pm Jan 9, 2009 4:46pm
gspajon, i totally see your point on every trader have different support resistance.
This is what i try to find with other peoples response in where and how do u draw urs to try and find what most people seem to think is support and resistance, this will inevitably become true support or resistance or strong because majority of traders agree upon it and so it will have greater reaction if u get my ramble.
  • #8
  • Jan 9, 2009 4:47pm Jan 9, 2009 4:47pm
Quoting fry2010
longtobefree, that is an excellent point. Looking at where price 'reacts' more.
Its got to have more value more people must be reacting to it.
Another point I wanted to make is with patterns.
Quite often you only notice a pattern onces its already formed meaning you miss out on some great opportunities. It all ties in with hindsight is a beautiful thing, but not practical.
IMO, patterns (TA) and S/R are two completely different things. TA is a very educated guess on where prices will go based on recent charts but S/R is more factually "raw". Its almost two completely separate discussions.
  • #9
  • Jan 9, 2009 4:58pm Jan 9, 2009 4:58pm
Quoting fry2010
gspajon, i totally see your point on every trader have different support resistance.
This is what i try to find with other peoples response in where and how do u draw urs to try and find what most people seem to think is support and resistance, this will inevitably become true support or resistance or strong because majority of traders agree upon it and so it will have greater reaction if u get my ramble.
I use a very simple technique for support/resistance. Fractal points. You mentioned them earlier. Any extreme that has not been exceeded for two time frames prior and two time frames after. Or just use the Factals indicator on the MT4 Charts. I draw horizontal lines on each of these...in areas where they group, are areas where you can expect a great deal of consolidation. But they clutter up your charts really bad and I am now only using them, one on each side of the current price action. That way when price punches through I can move my stop up, as this would seem a significant move in price.

Just my humble opinion...worth exactly what you've paid for it...nothing.
  • #10
  • Jan 9, 2009 5:06pm Jan 9, 2009 5:06pm
Quote
worth exactly what you've paid for it...nothing.
lol so mt4 is worth nothing also?
Anyway thanks for that explanation on the fractals, i never really liked them myself cause there was too many to mean anything. Now I know what they do, cheers.
Longtobefree, sry i disagree that patterns are not to do with support and resistance, because they form due to support and resistance.
  • #11
  • Jan 9, 2009 5:18pm Jan 9, 2009 5:18pm
Quoting fry2010
Longtobefree, sry i disagree that patterns are not to do with support and resistance, because they form due to support and resistance.
That only true in some cases. But in most others, patterns for various reasons. Besides, your statement wouldnt hold for continuation patterns or Dojis
  • #12
  • Edited 5:39pm Jan 9, 2009 5:24pm | Edited 5:39pm
go down to a smaller time frame and a doji has support and resistance creating it. sry to still disagree.
A flag is created through support resistance too, i think u may be mixed up with trendlines maybe?
  • #13
  • Jan 10, 2009 8:29am Jan 10, 2009 8:29am
well there is no such thing as support or resistance

people just justify themselves for the reversal movements and drawing lines to proof the crippled theory

I have the proof that there is no support or resistance, price just goes up then down, then up and down again based on market sentiment

so my best advice is to leave everything you have learn about S/R and start trading by watching the chart nakedly (preferably multiple interrelated market charts) and always being here and now

or you can just simply start drawing some lines on your chart, trading the 50/50 way to success
  • #14
  • Jan 10, 2009 9:10am Jan 10, 2009 9:10am
Quoting Gift_Art
I have the proof that there is no support or resistance, price just goes up then down, then up and down again based on market sentiment
ORLY? So why don't you post it? ^^
  • #15
  • Jan 10, 2009 9:12am Jan 10, 2009 9:12am
gift art, i hate to disagree with u also.
I have kept away from using the term 'supply and demand' because I know a lot of people arnt really aware of its true implecations. But supply and demand is basically the real term for support and resistance.
And you cannot deny supply and demand because it is the fundemental factor that drives the market, infact every single market there is.

Also just wanted to point out that im not looking for ways to trade or systems, my main reason is to find out peoples views on true support and resistance or rather supply and demand. This is so I can refine my own trade desicions.
  • #16
  • Jan 10, 2009 9:56am Jan 10, 2009 9:56am
S&R is key, doesnt matter in what form it is presented for the traders delight. If you have the required skills to make them work for you means your doing well and you is on the right track.

Regards.

Quoting Gift_Art
well there is no such thing as support or resistance

people just justify themselves for the reversal movements and drawing lines to proof the crippled theory

I have the proof that there is no support or resistance, price just goes up then down, then up and down again based on market sentiment

so my best advice is to leave everything you have learn about S/R and start trading by watching the chart nakedly (preferably multiple interrelated market charts) and always being here and now

or you can just simply start drawing some lines on your chart,...
  • #17
  • Jan 10, 2009 9:59am Jan 10, 2009 9:59am
TL with 2 points are not technically significant as any line can be drawn in space containing only 2 points. Market will mostly not care about such lines. So my point is that the TL will mostly get broken on the 4th touch as its the kiss of death as one professional trader calls it. There is alot of valuable information regarding this but you need to know what your looking for.

Cheers

Quoting fry2010
Here just two methods out there.
The first image shows typical trendline where the line is drawn from the high of a wave to another high.

The second actually ignores the high or low, and finds a candle where:
1. Support has two bear candles before it and..
2. two bull candles after it.
The opposite is true for resistance.

Interesting thing to note on these particular examples is the typical way of drawing them price breaks through and then comes back again (look at the highlighted area).
On the second method price has broken through and has pulled...
  • #18
  • Jan 10, 2009 10:05am Jan 10, 2009 10:05am
thank you belekas for clearing that up.
  • #19
  • Jan 10, 2009 11:16am Jan 10, 2009 11:16am
Quoting fry2010
thank you belekas for clearing that up.
My advise is to read Igrok thread on ff but before this you have to read this book "beating the odds in forex market" written by himself. hes been profesionnal trader for more then 15 years, and its the best you can get. cheers.
  • #20
  • Jan 10, 2009 12:06pm Jan 10, 2009 12:06pm
Quoting Gift_Art
well there is no such thing as support or resistance

I have the proof that there is no support or resistance, price just goes up then down, then up and down again based on market sentiment

so my best advice is to leave everything you have learn about S/R and start trading by watching the chart nakedly (preferably multiple interrelated market charts) and always being here and now
You can trade as naked as you want but you are still trading s/r.
Market movement all comes down to supply & demand which by the very nature of its being establishes s/r levels.
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