Indicators are Liars! Support and Resistance Trading for FX

Hi everyone

I am a trader of the S&P emini and have dabbled with FX trading in the past and recently started trading EU and GU applying the methodologies I use in my S&P emini trading. Why not just stick with the emini you ask? I am in the UK and the main trading session does not start till 2:30pm, I do trade the pre market but it can be very slow, so to fulfil my itch to trade I have reignited the FX fire.

What will be the philosophy and focus of this thread? Many traders believe that to be successful you need mountains of indicators that give you some kind of "edge" over the market. I am here to say that trading as a means of consistent income does not have to be painful or difficult. That less is certainly more when it comes to trading. Ive met traders with every indicator under the sun on their charts, with years of training under their belts having spent thousands of $$$'s and STILL not making a consistent income....

Why? Because Indicators are liars! Sure sometimes you might pull of a trade or 2 but in the end you always get spanked....Why? Because not everyone uses a MACD with your settings, not everyone uses a Stochastics or an RSI. I believe to be an effective trader you have to look at what the majority of traders look at...So what do most traders look at? Support and Resistance! Almost every system out there uses Support and Resistance to some extent. Support and Resistance is our number 1 indicator. So why not make Support and Resistance your system?! Mark up some levels on a chart using time frames from 1hr and above (this is what the big boys who move the market watch, so no lower please) and see what happens! Use other info that the majority of traders watch ONLY as confluence, Market Profile levels, Pivots and Fibs.

Starting on Monday I will post my daily trade prep sheet listing the key Support and Resistance levels I will be watching and confluences for those levels. In many instances historically referenced Support and Resistance levels can help traders catch markets tops/ bottoms to the very pip! Why? Because Support and Resistance levels are the most widely used trading tool! Everyone from Hedge funds and banks to the small time trader at home use Support and Resistance levels

It might be difficult to leave the system you are using now so why not use these levels as a guide alongside set ups defined by the system/strategy that you are implementing. All levels described have historical significance and are thus considered high probability numbers. The numbers described are in a fairly large range to take account of market volatility. Throughout the trading day these numbers can become areas of Support AND Resistance.

I am not saying I have all the answers but working together I am sure we can find a method that works

indicators..... and statistics. lol

My intreast subject !!

i will fallow ur posts here.. hope learn from you man .

Interesting topic, I will followup. you are right, support & resistance is important.

PivotFarmer,
The motivation I was taught in the stocks and index crowd was to find a method that no one else had, so the price you find doesn't keep falling short because the big boys knew you'd try and use it. I guess your motivation works, too. Cheaper, at least.
Looking forward to hear someone from the emini.

Indicators do not lie unless the indicator program has a bug. Indicators show what happened in the past. That is what they are designed to do. Traders see "patterns" and then erroneously think when the pattern appears again, the price will act the same as it did before when, in fact, what happens next is a random event.

I believe no one was saying the indicators were "lying" (not doing what they were supposed to do), but there's nothing you can tell from indicators that price already showed you. Indicators say "overbought" or "oversold" but the market doesn't CARE. Indicators say based on past price action that price has "momentum," but with that information alone, the market doesn't CARE. Especially in the short term, everyone knows that price can turn in a heartbeat.

I am close friends with many hedge fund, bank, and prop desk traders, and some use indicators such as MAs as a general gauge, but it makes up a tiny part of their analysis and strategy. If you pick up any bank reports you will see the mention of "key levels" which refer to support and resistance levels. The market pays attention to key levels because there is a human tendency to anchor to reference points.

Some key things to remember about support/resistance, patterns, etc.
1. Chaos isn't dangerous until you form patterns out of it - the Zurich Axioms
2. Markets are fractal. Most problems that support and resistance traders face is not that they picked the wrong levels. It's that they weren't clear on their time frame. You may see a certain strong S/R level and think that it may hold but you hold the trade longer than the "strength" of that level. What I mean is that if you see a confluence of S/R levels on the 4hr chart, you should not give the trade two weeks to make its move, and the price target should be comensurate with how much price is likely to move in a certain time frame (i.e. its volatility). Likewise you wouldn't fade a rally at a multiyear resistance level for 10 pips would you (I'm exaggerating)? People think trading is only about whether price is going up or down. You also have to consider how much and over what time. Any options traders in the house? They know this very well.
3. Not all S/R levels are created equal. Just because you see a high from 2002 which coincides with a 61.8% fib level and a big figure price level doesn't mean that the level will hold. Markets change and along with that, the market participants and their motives change. Have an understanding of what was going on back then vs. what's happening now. If conditions are similar enough and the market has a similar focus or is looking for a reference point to anchor to, then play that level. If not, stay away.
4. A scared market knows no support and a confident market knows no ceilings. Volatility comes in clusters, and if you do realize that something is really shocking the market, then get out (unless you are riding that move, which means you aren't trading S/R) until the move looks extended and weakening.

I hope these help. Each one of these realizations are from my dusty trading journals and represented a breakthrough for me.

All the best, people!

Kris Matthews

liked ur idea will follow ur thread waiting for charts.

Good Morning everyone!

Attached is my personal data sheet, its exactly the same as the one I use for my ES and futures trading.

Time permitting I will try and put something together for GU.

Its ALL about confluence, as the thread unravels I will explain how I use this information.

The key information is in the black S/R column all the other info helps strengthen these levels and/or can be used independently if the user wishes to do so.

Any questions please do ask away.

Note to moderators: I have no intention of selling these sheets, I have been making them available for free for a year now on the ES and will continue to do so. This is my way of giving back to the trading community.

Yes. Price reacts to current conditions, never to patterns. Patterns show when similar conditions appear, which makes it an indicator, not a blueprint. A traditional pattern would be lots of versions of one general pattern with a particular set of measures.
No. It's human nature. An indicator's group of symbols covering the usual circumstances from its own approach creates a proto-language of the chart, or a traditional pattern's one symbol with lots of possible versions adds to a loose collection of other such symbols on the chart, which both provide a statistical advantage with interpreting the chart and trading from that interpretation.

After failing to get much from patterns alone over the years except a statistical advantage like everyone else, I went after what makes patterns in the first place. Support and resistance, which are usually defined as horizontal lines at popular prices, does this; I found that a trendline based on the event that created those popular prices works better, as a variable-price type of support and resistance. Then one could rank the trendlines and apply another proto-language or loose collection of symbols around the trendlines, to reduce one's chances of failure more.

PivotFarmer,
emini experience into FX.... a dedicated thread, sounds interesting.
Thanks for sharing

it's funny to see how people react when one say that the only thing you need to trade like the big boys (which is the n.1 aim) are some horizontal lines. well, it's not so funny, because they lose money misleaded by the latest mathematician who created the super turbo auto-robotic trading system. colourful, obviously. and what's even worse is that they pay for that ().
fortunately there are persons like pivotfarmer, james16 and jacko that leads us on the right way.
open your eyes guys and judge with logics.

Hi guys

Thanks for the very supportive start

This link will take you to an explanation of the various parts of the data sheet http://1.bp.blogspot.com/_wppNxCXs7W...h/Glossary.jpg

Please bare in mind the descriptions are oriented towards futures trading, however generally the crossover should be pretty seamless.

My methodology is based around confluence. S/R I think offers the highest odds trades both for reversal and breakout. So I have lots of respect for the levels in the black column. The rest of the central table helps traders weigh up the importance of these price based S/R areas by comparing with other methodologies in the surrounding tables such as various pivot calculations, Fibonacci cluster areas, Market Profile and MAs

When S/R calculation methodologies line up this generally offers the highest odds trades. But just to be completely clear well identified price based S/R trumps everything, the beauty of the sheet is that you can pick and choose what you use based upon your own methodology.

I think with the direction my thread is heading in, maybe it should be in theTrading systems section. Anyone know how I can move it there?

Market profile has become an important part of my ES trading, its not something I've heard often discussed in FX circles. I feel it can ass a lot of value.

I think for most FX traders the volume extreme information should be of interest, the volume described is cumulative over the course of around 3-4 months. These peaks and troughs in volume offer great insight into the importance of certain market areas and add great weight to S/R areas.

not sure... but maybe u can contact Twee about it.



Maybe u would like to share your experience about this in a VSA thread here.

Market Profile is NOT VSA. They are two separate things. For more info about market profile, read here: http://www.forexfactory.com/showthre...t=38423&page=1

Hi Farmer,

Do you trade bounces or breakouts (or both)?

Great thread and great topic thanks PivotFarmer,

S/R just makes sense and what Kris is saying hit the nail so on the head as this was what I struggled and and actually still struggle with when it comes to taking profits from S/R trading.
There is nothing worse then seeing a trade regulary becoming profitable and then coming back to hit your S/L at break even or worse at a loss.
Gauging the potential size of a move against the timeframe and other factors one uses taken for S/R set-ups is so important imho and something that I am still digesting into my mindset as we speak.

In fact it's so important that I copied Kris' comment and link to it in to give everyone who is interested in that type of trading another opportunity to read it again in case you haven't yet.

http://www.forexfactory.com/showpost...33&postcount=7

I know & i did not say that.
I just sort of invited PivotFarmer to drop by the VSA thread in case he wants to share his insights & experience.

I just read my post and realise I sounded harsher than I actually intended. What I meant was that although VSA and MP/MS share very similar characteristics, the 2 can almost be compared like this:

VSA is volume over time (typically shorter periods and not based around supply and demand although the signals in VSA tend to fall at resistance support levels)
MP/MS is volume over price, over time (periods tend to be longer to show correct levels and will show exactly where the current supply and demand levels are)

This being the case, PivotFamers reading would not necessarily correlate to anything discussed in VSA, especially if he does not use the VSA indicators or methodology.

Limstylz,
Yes i think u did. but no worries..
It's good that u clarified that now.