I was planning my upcoming trades for this week and came across a great example of When Support becomes Resistance, and Resistance becomes Support! I'll explain why i place each of the levels, and why i place them where i do, why that's important and perhaps most importantly, how to trade it! So let's get to it.
I've labelled each of the support, resistance and trend lines with a number starting 0, ending at 5. Let's begin with 0.
I place line 0, simply put, where the price has not been able to push any higher. I place it above the price action, and extend right. This will be our top level resistance.
Line 1 is our downward trend line. I start the line above Line 0 and draw it so that it crosses the tops of the rejected candles. I extend it down and to the right. The reason i place it across the tops of the rejected candles is because each time the price has hit this line, it's been rejected, which is a good sign you have a true resistance trend line.
Line 2 is the first or our horizontal supports. i determine there is support here as price has moved significantly counter to the current trend. I begin the line near to the open or low of the candle, and extend right.
Line 3 is the second of our horizontal supports, and you guessed it, it's been added because price has moved significantly counter to the current trend, and as line 2, I begin the line near to the open or low of the candle, and extend right.
Line 4 is an interesting one, and something to take especial notice of. Line 4 is the first trend line which is uptrending. The reason this is important is that it could be a strong signal that a trend reversal is coming. I place the start of the line at the point, (that's right, you guessed again), where price has moved significantly counter to the current trend, and i extend right, connecting the higher lows.
Line 5 is an extension of Line 3, and a great visual representation of resistance turning into support.
But what are the circles? WHY ARE THERE CIRCLES?
The circles are to identify (in multiple instances) where support has turned into resistance, as in Line 2 and Line 3, and resistance has turned into support, as in Line 5 and also the cross of lines 1 and 4.
So i'm sure some of you are now asking:
"Okay so i know how to place support, resistance and trend lines but how does that help me? Where's the profit in all of this?"
Well I'm glad you asked and it's in a link in the Related Ideas below, called How to identify trades using Support and Resistance.
Thank you all for your time, i hope that it's been helpful,
For_The_Many
Comentarios
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Good stuff! thanks for sharing, my support and resistance lines are pretty sloppy haha. One question, how do you determine which supports/resistance to keep? for instance, could there be a resistance around 83.5 on MAR 23, 15:00 or is that just a failed backtest of #2 resistance?
torrielw
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Thanks so much for posting this...I get very confused because support and resistance vary based on the time frame your using. If daytrading what time period do you use?
For_The_Many
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Hi @torrielw! Thank you for reading! I hope you found value in it :)
Well that's a good question :) When i day trade, and as a general rule of thumb, i find the support and resistance on the higher time frames, Day/Week.
Then you have to look at what your strategy is? Do you find you're in trades for a long period? or are you in and out quickly? If you're in trades for longer periods, look for trades in the 1hr-4hr periods, if it's very brief, look in the 15-60 minute timeframe.
I hope that helps, and if you want to any additional help, feel free to ask :)
qualicarewestern
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Where is the volume for each of these movements to the top and bottom. Without showing the volume for each of the value increase or decline in price, it would be meaningless to adopt an strategy based on these charts.
Thank you so much for the info. I have just recently started trading, and I would love to learn more, I learned more in a few months about the market than I ever knew. It isn't just about money, however having a few gains would be nice. I feel I have found something that interests me, and that can actually hold my attention. I know next to nothing about the T.A. such as charts and grafts, where would you direct someone who is starting at the beginning, get the basics first, so that maybe some day I can pay it forward with helpful knowledge.
For_The_Many
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@jakebodine677, Hi Jake! if you ever have any questions or want to bounce some ideas around, i'm all here for it :) I hope you enjoy your future career as a full time trader :))