How do you determine whether a S/R level will hold or not

hi, traders:
I've been trading with price action. I have a question that's been bothering me for a while. Here it goes:

'When price is moving into a s/r level, is there any way to predict whether this level will hold or break?'

I believe this question is important in setting profit targets, etc. And I welcome any feedback from all you guys. THX in advance!

Shuo

When you say "price action" do you mean strictly candles or bars? Or with trend lines, fibs, horizontal support and resistance?

hi, Baillie, thx for your reply. By saying that I mean when candle (price) is moving into horizontal support and resistance, is there a way to predict whether this level will hold or not? THX

In my opinion, you will need some sort of confluence to help you make that determination. I do not trade using only horizontal support, I use Volume, fibs and trend lines to support my decisions, that is my main trading strategy or technique. Also, the time frame you choose can influence your decisions or help make your decision easier. I will post a pic so you can see what I mean.

Here is a 4 hour chart with a horizontal support (recent) which was previous resistance, but as you said how do you determine if this level of support will hold the next time around? It would be purely a guess with out some kind of help or confluence.

Ok, now I have added a fib from the lowest swing low before the horizontal line and extended it to the highest swing high after the break of the line. The rectangle box shows the 50% -61% Fib, a high probability bounce area. Notice the oval where price retraced back to horizontal resistance which acted as support.

On the second picture, notice that there was not a close of price below the low of the down candle, the low was broken but price did not close below.

So by just using a horizontal line and a fib retracement tool you have a better picture than you had without. And looking for candles to close above the lowest low coming into that level tells you there is some resistance to a further move down.

There are things in my opinion that may help suggest a support/resistance level will hold but ultimately it is unknown until it occurs.

Timeframe - S/R on higher timeframes usually holds more weight so when the market comes into these areas it is more likely to hold as opposed to a level on a lower timeframe

No of touches - They say the more prior touches the higher the chance the level will hold. From experience you usually get to a maximum of 4 touches before the market breaks through, however once it does that level often provides a strong opposite ie support turned resistance and vice versa

Confluence - Can use things like Fibs, ATR, convergence/divergence, trend lines etc to support an arguement for a level however don't get in the habit of manipulating these tools support what you want to see ie drawing multiple fibs from multiple swings just to see if you can get something to line up.

Price action behavior into the level - If you looking for a bounce to go long, has a massive Bearish Engulfing candle or something that suggests a strong bearish bias just come into the level and have the chances of a break increased as a result. This is can be especially true if you get a signal on a higher timeframe whilst you are looking at a lower timeframe S/R level ie trading 5m levels but yesterday candle is an outside bar - will that 5 min level hold?

Relevancy - What this means is how relevant is the level most recently. If there is a strong S/R level but on the most recent movements the area has had no respect (the market has traded up and down through it without impact) then is it really as strong as perhaps a nearby level that has.

Stop placements and prior market direction - Having a good step back and looking at the market - what is it currently doing - trending, sideways, forming flags/wedges etc and if you were to take a trade where would you place stops and is there a chance that others will place stops in the same area. One thing to be aware of is thinking like a larger institutional trader and saying "where would most amateurs place stops?" If you answer is directly below a swing then chances are you may get stopped out so think smarter

Nearby S/R - Be aware that whilst you might have a strong S/R level, if there is another level close by that has a support/resistance argument, you will often find the bigger institutions squeeze down to that level in an effort to trap traders who are playing both a break of the stronger level (and who in the process of doing so put their stops immediately above the high/low of that breakout trade), and also those who may be playing for a fail. If you have ever seen a strong level get broken, a bounce at an area that seemed to have insignificant support/resistance in comparison and the immediate run back with a failed break then you know people got played for their liquidity for a larger institution/s

Hope these help. If I get some time I will post some charts to explain what I mean by each I will but just be aware that S/R like most things trading only prove themselves after the fact so if you are playing entries around them then collect as much data to improve your odds and if you have a trade that is coming into those areas then have a look at the trade as a whole and ask the question "Would I be better taking profits and re entering the area if the area does as I expect it, or can I hold and see what happens"

Take care

RT

you need to know the power behind the move and the power of the SR.

Simplifying, if a weekly trend is hitting a H4 SR it is less likely to stop the move.

it as simple as OBV

As simple as OBV..............this was USDCAD friday

I like that technique especially because volume supports the move

hi, Cog:
THX for your reply! But I am still a little confused: How do you use OBV indicator to determine if a level will hold or not when price is moving into this level? Sorry for my dumbness but I can't seem to get it in your example.

Shuo

when OBV is higher but price does not break the support /resistance levels, strong market moves are gathering at support/resistance levels. in many of charts that i experienced, if prices are clustered at support levels together with price action/ reversal patterns showing upward move, prices may break resistance. it is just an example of many cases. You need to read a lot of charts and remember classical price patterns. it is right all of the time.

Hey thanks for asking

The first thing you have to realize when it comes to FOREX, is that we dont have true volume and everything is based on price. When you realize this, you then have to look at the next best thing to volume, the TICK volume or said differently the Rate of Price change in a TF. Then you have to think of tick volume as volume!! How can you do this, you ask ? Well think of tick volume in correlation to the price change over a the candle timeframe in very simple terms. Think of the buyers and sellers moving price, tick by tick each point change in price means a buyer/seller moved price one point or 10 points or what ever the price moves. This isnt actually true but it helps to understand it a bit better. Think of one Guy selling his position moving the price 1 TICK,another guy needs to buy 2 units, so that price can go up. SO as price goes up, the buyers are over whelming the sellers. OBV shows this by the accumulation of BUYERs/SELLERS (depending where price is) my example buyers are over whelming sellers. Then think of all the buyers/sellers made there position and now when some makes a move price is really gonna jump.

So when you have HIGH tick volume in a candle it means more players see that candle as a place to BUY/SELL price. Meaning there is more action, more players and more money being thrown around. The more likely price is going to move or reverse, compared to TICK VOLUME not changing, showing the market doesnt see that SUPPORT level as important. However when price hits the SUPPORT level again, after a slight bounce, it shows STOP losses being hit, sellers close there position, adding more currency to the market, dropping price. But if you have more UP TICKS this shows, the buyers are overcoming this selling pressure.

Think of the buyers and sellers accumulating the currency. Think of players seeing price finding SUPPORT and what are they going to do ? THey are going to close there position, possibly take on a new long position. MORE ACTIVITY.....OBV SHOWS THIS.
In the example I provided, it is 1 minute chart, and price touches the BLACK HORIZONTAL line, SUPPORT. Why is it support and why didnt it break ? Well price broke off, it didnt break that LEVEL. A half hour later the last 5 RED candles showed big price move, but not much volume. This shows there wasnt much restraint from sellers selling there position, it could be small players closing positions, trailing stop etc and price dropped because the BUYERS were waiting, Meaning with the HAMMER candle reversal we have strength because it was able to overcome the HUGE selling pressure. That one example. You dont even have to look for the HAMMER candle, I was more looking where OBV support was and where the BLUE CANDLE formed well above the in comparison to the OBV level.

Here is another example see where price is on the second box, its at the same level as what it was 30 minutes before. But look where the OBV was, its way higher, this shows the accumulation of the buyers, over coming the sellers. And think of the previous 30 minutes of all the sellers closing there positions, with the buyers buying there position. Then once the sellers stop and all the buyers have bought price can only go up because now all the sellers are out of the market.

Sorry for my ramble.......I do that, if you wanna hit me up SKYPE -COGSx86 or check out my FB group COGS's FOREX CORNER, where I post stuff from stock material to cool shit, its just for fun helps to have more people talk about the same stuff

https://www.facebook.com/COGSCorner?..._type=bookmark

hi COGSx86,

Just wanted to know if it is ok to use OBV on higher time frames....ur use of OBV is very interesting....would it be possible to show a few more charts on how u use the OBV on higher time frames....I looked at a few charts and OBV shows divergence near S&R but its a bit hard to set an entry....Thanks in advance...


Regards

Dennis

Hello zhangshuo.

I believe the first question you must answer is how does the s/r level relate to multiple time frames, and what type of trader are you? Intraday or longer term? Because H4 support may be D1 resistance. I am intraday so am more concerned with midrange price action. You must have a handle on the relativity of each level and therefore have a system that lets you view multiple time frames simultaneously.

This a screenshot of my MT4 on the first attachment. I show 2 pairs that tend to trade in tandem, the EU and GU. The 3 EU charts on top,3 GU on the bottom.

From Left to right I have my entry chart where I place all my trades, my midrange chart (mean renko) which displays H3 to H6 time-frame depending on the speed of the market. Finally, on the far right is my daily chart.

The light horizontal rectangles that you see on each chart are support and resistance boxes. They are automatically updated, I don't plot anything.

So when price enters one of the s/r boxes, I check to see if it is displayed on multiple time frames. If so it is a strong area.

Then I wait for price to show its hand by revealing an entry pattern (trigger). If no trigger appears, no trade. Also it is key to consider mid range waves of movement, pending news, and how parallel pairs are behaving like the EU/GU, and if the trade is counter trend or not. If counter trend, I stick 1-1 on my risk reward.

So once price enters a s/r box, there are multiple variables to consider and then wait for a pattern to develop (2nd diagram).

I see many people posting on FF who simply place orders based on pivots or fibo. I could never trade that way.

Good luck

Hi Pipster1

Is it possible to share the support and resistance indicator that u use....

Regards

Dennis

I used to look for support and resistance levels. They are not reliable.
You have to check the price action near support and resistance for "confirmation".

This means you can do away with S /R altogether (like 99.9 % of TA) just by looking at the price activity !

Example (a reversal)

here is mine this thing is pretty solid