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Need help for simple question: Who got the right S&R levels?

  • #21
  • Feb 24, 2013 3:15am Feb 24, 2013 3:15am
This is the problem I'm seeing with forex trading. Almost every book and gurus advocate the use of static S&R levels. We have more than enough evidence now that it can only work as subjective levels. It is like a limit that your mind want to set. There is absolutely no standardized statics S&R levels, which makes them useless, and using them as dangerous because you want to impose your own thinking to the market. "Oh price breaks through MY S3! It HAS to bounce back, because MY S&R indicator told the price to bounce back."

On the other hand, dynamics S&R levels, like supply and demand levels, are somehow standardized. Everyone looking anything below the Daily chart will have the same 1H dynamic S&R levels and 4H dynamic S&R levels globally. This is what most people would respond to, and I think has definite merits in trading.

Also it is very important to consider dynamic S&R levels as zones instead of considering it as a fixed level of price.

I hope anyone reading this thread now realize that what is commonly/globally taught doesn't necessarily make it the truth. Truth does not require anyone's validation to work. Truth simply works, regardless of the number of people who believes in it or not.
  • #22
  • Feb 24, 2013 3:18am Feb 24, 2013 3:18am
Quoting Ishtana
This is the problem I'm seeing with forex trading. Almost every book and gurus advocate the use of static S&R levels. We have more than enough evidence now that it can only work as a subjective levels. It is like a limit that your mind want to set. There is absolutely no standardized statics S&R levels, which makes them useless, and using them as dangerous because you want to impose your own thinking to the market. "Oh price breaks through S3! It HAS to bounce back, because MY S&R indicator told the price to bounce back."

On the other hand, dynamics...
I've said it before but I'll say it again just to spread the word - I've found most of the "conventional wisdom" in this scene to be misleading at best and financially destructive at worst. If something doesn't make sense to you you should find out why until you've gotten to the bottom of it and have come to a rationally satisfying conclusion. Nobody should be comfortable settling for "It works because the book says it does".
  • #23
  • Mar 29, 2013 3:55am Mar 29, 2013 3:55am
One other reason why trading static S&R levels is dangerous, is because there are 4 different possible outcomes when price arrives at a pivot level. It can:

 

  1. Break through - as if the level isn't there, and price just doesn't give a damn. If you put a stop or limit order on the line, you have 50% chance of being right.
  2. Bounce - price breaks or touches the line a little, then reverses. If you put a stop or limit order on the line, you have 50% chance of being right.
  3. Retrace - price breaks or touches the line a little, then retraces a little, then continues with the original direction. If you put a stop or limit order on the line WITH tight stop loss, you have very little chance of being right either way, as price hits the stop losses on both directions.
  4. Consolidate - which by itself gives another 2 possibility, breaking up and breaking down off the consolidation. If you put a stop or limit order on the line WITH tight stop loss, you have very little chance of being right either way, as price hits the stop losses on both directions before breaking up or down.


So in theory, combining the possibility of these 4 outcomes of trading static S&R levels, you have a very very small chance of being right. Not to mention every broker has different server time and projects different static S&R levels as explained in the fist post. And you have the subjective choice to put where the S&R lines would be (Tokyo Open, London Open, New York Open, Arbitrary point in time, etc). You might think the solution is to widen the stop loss, but that will only increase your winning chance by little while exposing you to greater risk.

But notice, in almost every forex theory book out there, that Kanzler mentions as the "conventional wisdom," recommends trading from these static S&R levels. Have you guys ever thought that may be, just may be, this is done on purpose to mislead us all?

  • #24
  • Mar 29, 2013 4:01am Mar 29, 2013 4:01am
Quoting Ishtana
So in theory, combining the possibility of these 4 outcomes of trading static S&R levels, you have a very very small chance of being right.
This is why you must not only consider the levels for your entry but also find a pattern on these levels. This is the pattern which will give you the right way.
MT4/MT5 EAs/Indicators/Alerts coder
  • #25
  • Mar 29, 2013 4:20am Mar 29, 2013 4:20am
Quoting FerruFx
This is why you must not only consider the levels for your entry but also find a pattern on these levels. This is the pattern which will give you the right way.
Yes, of course you can add patterns and indicators to filter bad trades, in which case these levels serve as an additional confirmation but not the main decision to enter a trade. But I was talking about the flawed fundamental basis of static S&R levels trading. I think the only possible explanation of why these levels seem to work, and only sometimes, is because they coincide with other levels (Supply and demand, indicators, whole number, etc). Or, a lot of traders, just happen, by random luck, and not intentionally, put their trades on these levels. But again how do you pick the right levels? The levels that the majority players happen to use? At one particular time? There is simply no logical correlation between these multiple events happening on one particular level, constantly.
  • #26
  • Mar 29, 2013 4:31am Mar 29, 2013 4:31am
Quoting Ishtana
I think the only possible explanation of why these levels seem to work....... Or, a lot of traders .....put their trades on these levels.
This is the unique reason why levels (daily pivots, fibo, etc ...) work. Traders look at these levels and take action on them ... making the price to react at these specific points.

Why Fibo numbers (not only for trading) work ? Because people believe at these numbers.
MT4/MT5 EAs/Indicators/Alerts coder
  • #27
  • Mar 29, 2013 4:44am Mar 29, 2013 4:44am
Quoting FerruFx
This is the unique reason why levels (daily pivots, fibo, etc ...) work. Traders look at these levels and take action on them ... making the price to react at these specific points.

Why Fibo numbers (not only for trading) work ? Because people believe at these numbers.
You're right my friend. But I just cannot grasp the possibility of these traders, who are most likely are not in communication with each other (or maybe they do form a cartel, I don't know), constantly putting the same trade, together, on the same level, e.g. S1. I cannot comprehend why someone would put a stop/limit order on S1 today, on S1 tomorrow, and on S1 the day after. But then again maybe that works. I just don't know enough to risk my money trading on these lines. I need more convincing evidence.
  • #28
  • Mar 29, 2013 6:53am Mar 29, 2013 6:53am
Quoting FerruFx
This is the unique reason why levels (daily pivots, fibo, etc ...) work. Traders look at these levels and take action on them ... making the price to react at these specific points.

Why Fibo numbers (not only for trading) work ? Because people believe at these numbers.

Big members like banks and institutions also closely monitor these levels to enter trades. But most of the time we can see false breakouts, false reversals, etc at these important levels to get the SL of the newbies.
  • #29
  • Mar 29, 2013 6:57am Mar 29, 2013 6:57am
Quoting brendad
Big members like banks and institutions also closely monitor these levels to enter trades. But most of the time we can see false breakouts, false reversals, etc at these important levels to get the SL of the newbies.
Our job is to find the best levels with the best patterns ... to avoid this.
MT4/MT5 EAs/Indicators/Alerts coder
  • #30
  • Last Post: Mar 29, 2013 7:11am Mar 29, 2013 7:11am
IMO

Don't predict where is the S&R

Let the price tell you

If it does something , S&R is there
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