Very accurate support and resistence play

First off this is part of my system, however it is a very important part. It works on all the major pairs and works on the 5 time frames I use (I'll explain). It is NOT a holy grail. I know there is no such thing. However that being said, I have NEVER seen anyone mention this and I have proven to myself over time that it happens in all market situations, with all majors and all 5 time frames I use. It is the most accurate support and resistance I have found.

Bare with me because many of you will think this doesn’t work at all when I mention it. I challenge you to look at it and prove this does not happen. It involves 3 EMA’s but does not use the crossing of them as a signal. I have found out that this does not work most of the time.

So here it is. EMA 1=25. EMA 2=150. EMA 3=365. The 5 time frames I use are the Weekly; Daily; 4 HR; 1 HR; and the 15M. Plot them on your charts for the Majors. Remember, this is not using the EMA’s crossing as a signal. The EMA’s are resistance lines. That’s it. When price approaches any of these 3 EMA’s on any of the 5 time frames on any of the major pairs price resists in most cases (heavy trading like NFP, Interest rate decisions, etc will often resist the smaller EMA's).

Treat them as any other resistance or support. Doesn’t mean price isn’t going to go past, but price will resist. The higher the EMA, and the higher the time frame, the bigger the resistance will usually be. What I mean by that is the 25 EMA on the 15M chart is not as big of a resistance as the 25 EMA on the hour chart most of the time. The 365 EMA is usually a bigger resistance on the 1HR chart than the 25 EMA, but usually isn’t as big of a resistance as the 365EMA on the Daily chart as price has been showing on the Cable.

To give a clearer picture of how to use this, let’s say you get into a trade on the Cable. Price starts to get on a nice run but then starts to hesitate at a point. If you notice you are approaching one of the 3 EMAs on any of the time charts for that pair you will want to watch very closely and even take some of the profit. However if you are approaching say the 365 EMA on the 1H chart you would be wise to take all of the profit and then wait and see how price reacts to that resistance area.

Remember, this is part of a system not the entire system. I use a couple of different techniques including recent highs and lows (another support and resistance technique), RSI (not used as overbought/oversold as this is wrong. That is another post, but RSI is actually showing trend not OB/OS. That is a misconception), price action, and the “natural” support and resistance areas called “century marks”.

Century marks are for example Cable at 1.3500, 1.3600, etc. Every even 100 PIPS. An example for USD/JPY would be 91.00, 92.00 etc. Every 100 PIP mark. That is another interesting play in itself so if you are interested in that feel free to ask because there are some rules on how to trade that by itself.

The important thing about a system is to get at least 2 things telling you the same thing. The more the better, however the caveat to that is you don’t want too many things or else you will never make a trade because you will be confused and get too many conflicting signals.

Look at the 3 EMAs. Plot them on your charts. Watch how price reacts at those areas. I have found it to be the most accurate support and resistance areas.

I know many of you will say that EMA’s are lagging indicators and don’t work. Yes it is true they are a lagging indicator. But I am telling you, the big boys are using these 3 EMA’s on all of the Majors on at least the 5 time frames I mention because price hesitates at those areas practically every time.

Only in major moves like NFP, Interest Rate decisions, etc will price sometimes plow through some of the EMA’s. However last week there was a major and sudden severe move on the Cable. Price went down 160 PIPs in just a few seconds because of an unexpected negative posting of a UK report. Price got to the 365 EMA on I believe it was the 15 minute chart and price shot back up 100 PIPs instantly. Seriously, it was instantaneously. It took about 20 minutes to get back to the 365 EMA and price steadied there and then hovered as the close of the UK market was near. The US market tried again and then the Cable went back up. That is just one example but a very recent one you can see for yourself.

Anyway, this doesn’t fully explain it so feel free to ask questions. Also feel free to challenge it. I love it when people challenge things, just make a good argument.

Trying to add a pic. The screen shot on this post can be ignored as it shows other things besides just the EMA's.

I have no clue how to take a screen shot and save it as a jpeg. The only way I know how to save a screen shot is as a Word doc. If other's can help feel free to let me know how to take a screen shot as a JPEG.

Anyway, the Word Doc will give an idea of what I am talking about. It's not the best pic but the best I can do at this time. This is a shot from today's action on the Cable.

As you can see, price will close above or below the EMA's but you can see how the closes overshoot or undershoot the EMA's. Often when price overshoots it will retest just like any other support. Remember these are support and resistence lines. You can use them as a signal to enter a trade. I often do, but I also usually use other things to go in on a trade.

When the 3 EMA's merge on a chart and are very close to each other, if not overlapping, you will often see consolodation for a while (can be a couple of hours to a few days depending on the mood of the markets). When the 3 EMA's are moving in one direction and seperated it is a strong trend. If they are close and criss crossed there is temperary confusion.

Once again, I do not use crosses as entry signals. It isn't very accurate.

Feel free to post questions and comments.

Press right mouse button and look for save picture menu

I'm still running Windows XP. Not sure if that makes a difference? If I right click anywhere on the charting program only options for the program come up. I tried everywhere. If I try my tool bar at the bottom of the computer, screen saver options come up etc. If I moved the chart over slightly to get the computer background, other things came up. No matter where I looked I couldn't get a "save as" option like you get on the internet.

My tip was only for MetaTrader terminal.

hi,
try this:
www.jingproject.com/download/

you can google it

I have MetaTrader so I can do that tomorrow so I can post pics. I am going to bed as my trading day is over and it is 5 am where I am at. I will pull up MetaTrader tomorrow and post a pic of what I am talking about.

Thank you for letting me know how to post a pic of charts. It's appreciated.

Try press the "control" and "print screen" button at the same time.
Then open paint brush programe from the accessories folder.
Pull down edit menu and click paste.
The chart should be on the pasted on the paint screen.
Then save it as jpg or gif file.
Cheers

This is my main screen grabber....

http://www.wisdom-soft.com/sh/sh_free.htm

Forexpreneur,

Interesting topic. I do the same thing but I use 50, 100, 200 SMAs on 1 hour, 4 hour, and day chart. I use these SMAs because it *seems* to me that lots of people use them. Also, there is the added benefit that the 200 SMA on the 1 hour chart is the 50 SMA on the 4 hour chart. (In other words, the position is the same.) So you have some linkage. If you use odd-numbered SMAs, they don't link to other charts.

Of course the devil is in the details, as they say. So I am wondering if you care to give a little more detail about how you choose to enter a trade, how you choose the stop position, when you take profits, and how you use the various timeframes.

Happy trading.

Nice link, Peter. Thanks.

I don't like to give up easily. Thanks for the posts on getting pics up. I will try a different screen capture tomorrow so I can show my GFT charts, which I think are much better. However here is a decent screen shot from MetaTrader.

So you can get a clearer idea of what this chart is, it's a 15M of the Cable and is current at this time.

(For those who are a little new to this like me you can click on the chart below and make it bigger. That way you can see better detail. That's only for people like me, you pic posting pros already know this. LOL )




There are 3 EMA's. The green EMA line towards the top is the 150 EMA. The blue EMA line (second from the top) is the 365 EMA. The bottom EMA line (purple) is the 25 EMA.

Remember this is the 15M chart so the 25EMA reacts quicker, however price still reacts when it approaches it and still acts as a resistence level.

I didn't cherry pic a chart. This is current as of 15 minutes ago on the Cable. There is a lot to explain on the chart on why price did what it did. However for now just look at it and see how price acts with the 3 lines. Just like most resistence areas, price does break through but often retests.

Also when the lines start to get close price often will bounce between the lines before a break occures. For example, if you look at the center of the screen above, look right of center. You will see price bounce for a while between the green and blue line. At a point, price crashes through the blue line and immediately goes through the purple line and stops at an area. Price stopped at a previous low from a couple of days ago as a side note. Which happened to also be an EMA on the 1H chart.

See how price went lower 4 candles later? Then a few candles later price went up to the purple line went slightly passed (ended up stopping at a recent previous high if you look a few candles to the left. You'll see the wicks at the same exact area). Price rejected and then went back down to the previous low area.

I know there is a lot there but just look at price action with the EMA's for now. That is what I am focusing on showing.

Understand, you can go back as far as you'd like. You will find the same basic things you are seeing here. However seeing it in real time is the true test. See it for yourself and you'll understand what I am talking about.

If you use these EMA's as areas to lighten your trades on the majors or to take all profits depending on the resistence, you just might find yourself saving quite a few PIPs. Especially when price comes back to the 365 EMA, and especially on a higher time frame like the 1H or 1 day.

Hi Forexpreneur

Interesting thread so far, I've decided to put in the 3 ema's for fun I guess....to have a look at your way of looking at S&R.

Guess what? flicking between 1hr 4hr an daily charts, guess you already know what I found.......areas of support and resistance.

Well done my friend!! http://cdn.forexfactory.com/images/icons/icon14.gif and many thanks for sharing this. As many good traders suggest 'all you need to know to trade, is where support and resistance is' http://cdn.forexfactory.com/images/icons/icon10.gif

Many thanks and cheers
Ezzy

Any ideas on ideal SL and TP? I'm guessing each EMA requires different requirements?

Looks interesting anyway..

Hi Forexpreneur,
In the opening thread you mention ' century numbers ' like 1.3500 etc, this is something I would like to know more about and would be interested in your rules for trading them.

Thanks,
denny16

I presume he means that act as support/resistance. They are considered psychological levels rather than technical levels of s/r.

"
Hi Forexpreneur,
In the opening thread you mention ' century numbers ' like 1.3500 etc, this is something I would like to know more about and would be interested in your rules for trading them.

Thanks,
denny16"

Exactly what the post right above says. These are psychological levels. You treat them similar to other support and resitence but quite often price will go past the century mark and stop at 20 above. So for example (just to clarify) if price rose to say 1.6500 on the Cable it will often go up to 165.20 and stop. You can quite often capture another 20 PIPs by knowing this.

The same is true if price is shorting. Once again let's say price went DOWN to 1.6500 it will often go another 20 PIPs down to 1.6480. So it's just the opposite with price going down. You can often capture another 20 PIPs if you understand that.

Some of these areas are major resistence levels. The way you can tell that is by looking at your hourly chart and daily chart for the pair you are looking at. Go back and look for a century mark that has 3 or more stops in a row at a certain area. Mark it on your charts and look back. See if price has had a difficult time at that area before. Go back a year or even more. If it is a major resistence area than you know if you are in a trade you will want to consider taking profits and wait and see how price reacts. If you aren't in a trade you will want to really be cautious to enter a trade untill price either rejects or breaks through. This can save some serious headaches.

You will want to be careful at those heavily rejected areas (you find that out like I mention avoe) because price action can get very volatile. Last night was a perfect example with the Cable. The 1.6300 century mark is a very resistent level and once price got to it the Cable became very volatile.

So to sum up,
1) If you aren't in a trade and price is at a century mark be very cautious on entereing a trade untill price proves itself.
2) On a run up price will often first reject the Century mark, but often will move up 20 PIPs past and then come back. I believe this is to fake people out, but that is just a guess.
3) On a run down price will often first reject the Century mark, but often will move down a further 20 PIPs and then come back.
4) If you are in a trade and approach a century mark, risk it for a few minutes and try to squeeze up to 20 more PIPs.
5) If price hits a century mark at the end of an hour, price will very often snap one direction or another so just be aware of that.
6) If price hits a century mark other than the end of an hour, wait untill your 15 minute candle closes unless you see something different. I have seen many times price will reject the Century mark making it look like a rejection only to see it go the extra 20 PIPs by the close of the 15 minute candle.

Those are a lot of rules and are daunting at first. Remember, just like everything in trading, it doesn't work 100% of the time. We are only trying to get the odds in our favor. I have seen price hit century marks plenty of times in the last 5 years or so and have learned this over time.

I agree with you on the round numbers idea and how it makes it easier to use between charts. I have played with many EMA's and many work some of the time. I just haven't found anything more accurate than the 25, 150 and 365. Yes, it can be a pain if you don't have more than 1 monitor but you can get used to it if you train yourself to look often. I have them set up exactly the same on all charts (same colors for each EMA) and this obviously makes it simple to go from chart to chart. I know exactly what each line means.

Thank you and you are very welcome. There are many things to trading, but I agree that support and resistence is a very huge part of trading. It can save you money by knowing where price is going to have a very difficult time getting past.

Just as a side note, the 365 EMA on the daily is almost always a huge price stopper, and price will often hit it and scream back the other way. However like most resistence levels it will most often come back and test again. Sometimes it can be hours (not that often) or usually it will be days, or on some it can retest for a couple of weeks.

Knowing just that alone can be a huge help to most traders.

Isn't that amazing how they work on those charts? I found those over time and one day it all snapped together in my mind and I was blown away why I had never heard of using those 3 EMA's before.

Cheers, and happy trading.