Is S/R important over a long period of time or irrelevant?

I was taking to another trader about how I trade breakouts. I zoom my daily charts out as far as I can so I can see the largest S/R levels, and this is what he said:

" suppose the stock breaks out and you are looking for a target to exit your trade and you see a congestion zone that occurred 1 year ago where potential "get out even" sellers, as the theory suggests, exist and will sell their stock forcing the stock back down. Roll that congestion zone out a few more years and it become less and less significant. As time elapses points of reference that exist on a chart become less significant and can be completely discarded if enough time has passed. Edwards and Magee talk about this concept in their book. It's an important concept and experience has taught me it's something to pay attention to. "

His statement goes against everything I thought was true about S/R... I always thought that the MORE times price hits and bounces off a certain level, the MORE important that level becomes. John Murphy's book also states this, however Edwards and Magee have different opinions?

This is what my modest experience tells me:

Price moves from one extreme to another extreme (no matter what timeframe) and past S/R do matter. This is not about some traders getting out breakeven and selling as a result, this is about the fact that in the past price was perceived as expensive and nobody was willing to buy anymore. We don't even have to talk about years, we can talk about decades.



This is silver. Price collapsed almost 30 years later after the first bubble burst. At 48-50 dollars nobody was willing to buy anymore. Not then, not now.


About hits and bounces. It depends how you trade. You trade breakout. So indeed the more it bounces the more important that level is to you, because it might break next time. I trade reversals. The less times level has been tested, the higher the probability of another bounce/turn.

Thanks for that chart. It puts an interesting perspective on things.

when talking high timeframes, it is more based on the psychological perception of how traders think of where price is. For example...there wont be pending orders that have been sitting at a level for 5 years just waiting to get filled. There will be traders who possibly perceive that level as being very cheap and start to position themselves around that past s/r when price gets there; in relation to what price is currently doing, of course.

So retail traders account for what, 8% of the $4 trillion t/o in fx daily? So let's suppose the vast majority of t/o is done by institutions, now where do you imagine they (the banks) place their buying/selling orders, r1-r3, s1-s3, 00 numbers, 50, 100, 200 MAs? Or do you think they have armies of traders waiting for an alert to go off on their shitty mt4 charting package with its silly expert advisor coded into it?

i read somewhere... and I believe it was the "Technical Analysis" book written by Charles Kirkpatrick, that Technical Analysis is less about certainties and more about managing your risk in such a way that stacks as many of the probabilities of success in your favor...

with that being said... the advantage of using TA, because it focuses on price action, is that a price point can be established using S/R levels in order to determine the validity of the trader's analysis or to call into question the price behavior of the financial instrument in question...

so, because your risk of loss can be determined using a price point defined by S/R levels on a lower time frame OR a larger time frame, like say a daily chart, i would have to say that S/R levels are relevant regardless of the time frame...

what is more important however, is the execution of the risk associated with testing that S/R relevance as the market will never produce 100% certainty.

the trader must always be mindful of what can be Lost in risking a market execution of any type, and using Stop Loss orders above or below the S/R levels in question will ensure that if price breaks out to the opposite direction of your trading theory, then your losses will be minimized in such a way that would allow you to continue to approach the market in the future... to stay in the game is the name of the game, and using S/R levels as points of validity in order to test the significance of said level is indeed the more probable thing to do as a trader...

at the end of the day though, you never know... the market could blow passed the level of consolidation or reverse at it... remember what might be consolidation on one time frame might only be a supply/demand zone being fed in a trending market on a larger time frame...and vice versa, what might be a trending market in a smaller time frame, could be consolidation in a larger time frame. i think the best way to help make a decision as to which way to test a market at relevant S/R levels is to confirm the direction of the trend on a larger time frame then use your trading time frame to look for reversal patterns completing at S/R levels that give you an opportunity to test the "relevance" of those levels...

the best thing about trading it like this is that when your theories do fail, then the ONLY other option a trader can have is to reverse his position in order to take the market in the opposite direction.... gives it a whole other dimension to think about

my .02...

hope that helps...

that was funny

Yeah, I'm a laugh a minute me, with a low pain threshold for stupidity.

This is silver. Price collapsed almost 30 years later after the first bubble burst. http://www.nobod.info/g.gif

Because supports and resistances are were all people in the World are looking when we are on the same page in the same day we want to see what happen. Never mind if are 10 years ago supports or resistances. That was how silver tested the previous high. It is not demand that causes rising prices but are rising prices that cause demand. (Richard Ney) Magee book is very good. I loved the chapter about the SEC investigation on that stock
http://en.wikipedia.org/wiki/Silver_Thursday
http://en.wikipedia.org/wiki/Andrew_...(whistleblower)

Hi

Sorry to ask this as I am newbie, what is S/R?
thanks

support/resistance