So why does it not work for us and for some it certainly works.
I am attaching my CL chart with my calculated pivot point and levels in Deep Spring colours and mid lines are in dash.
If we all apply the support and resistance of some sort then dont we think we all could be right or we all could be wrong.
Why is it and what time frames should we use to match or replicate the Institutional traders time line and format so we can ride the wave with them instead of against them.
No mater what instruments we trade, it always stops at a certain level and retraces to a certain levels. Fib doesn't work either ad we need to know how and where to use it correctly.
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A common misconception is that just because we calculated level price will always (insert whatever) Price does not always do anything. S/R levels are only part of the analysis. I start by looking at the market in a larger time frame. I then consider upcoming news announcements and earnings reports along geo political events. Most of this is done Sunday evening. The through out the trading week I am searching for price at a S/R level with a candlestick/price pattern formation that justifies an entry. I want the setup to be such that if correct I make money and if wrong I am out right away. S/R levels are only a small part of the trading decision making process.
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I think the issue with most of us is not allowing the "edge" to work out. That is, whether you are using pivots, vwap, or what ever you are using, you have to be consistent and let the numbers work out. You have to create enough occurrences for your edge to work out. If you are using say pivots and you trade for a month and make money, then soon after that you get three losing days or non-consecutive winning days, then you start changing your charts and analysis ... then eventually you decide this is not working and you move on to something else. They for you you think VWAP, or whatever analysis you were using isn't working.
I strongly believe that the issue with most of us is on my management side. If you have an edge, and you accompany that with good money (risk) management, in the long run you will have a positive expectation. We are just too quick to yank/abandon a method once loses start coming.
I've always been an option buyer and have had minimal success (mainly because of bad money management - big wins, frequent small losses, and then bam VERY BIG loss (usually adding to an already big losing position because it worked one time - gambling)). I am an actuary by profession and I understand risk management and all the statistical theory behind options, yet I've always seen selling options as boring and not "enough" return (bad risk/reward). However at the beginning of 2016, I gave it a chance, and boy am I happy I did. I have a solid risk mitigation plan that I have followed and results have been great. My 2017 has also started very well. During the first part of 2016 though, there was a period of time where I had 2 or 3 losses out of 6 trades and I for a second started second guessing the probabilities. Nevertheless, I stuck with it and the probabilities worked themselves out. It's for sure boring but I like the consistency.
So, my point is, I think these "random line" (I find it interesting that some people dismiss pivots because they are a formulaic S/R, yet they use other formulaic ideas such as VWAP, Profile, etc - each to his own) might work if a strong money management program is wrapped around it. I don't know.
My 2 cents
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Because in general technical analysis is not reliable. Read the book, The End of The Bull!
I also think that S/P does work fairly well but often the levels just don't hold. You have all types of traders and algos using those levels and there's a lot of game play going on. I find that S/P works better in ranging markets but only for around 2-3 rotations.
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I'm going to provide a few different takes on S/R. First, I have used measures of S/R and "chart stepped" a chart over decades and seen strong evidence that my levels worked very well. On the other hand, I've always tried not to use S/R because I don't like to think like other traders. However, I've certainly seen even basic S/R work enough to question my resistance too it.
One reason S/R doesn't work though or doesn't work like one would hope is that to buy at a true support level means you have to compete against other traders which makes it hard to get filled. In other words, if you truly identify support then you're identifying a rather narrow opportunity.
But from a more theoretical basic analysis, if you expect S/R to hold then you must be able to identify trends or when S/R should not be the case because we know the market isn't typically defined or constrained in a narrow range for any length of time. The answer in that case would be that support/resistance can't work because conceptually it is not defined in a way that makes sense or agrees with basic observation of reality. But, a different sort of way of answering the question is to state it this way: markets over time tend to trend in one direction or another, and that is why support/resistance doesn't work. A similar sort of answer, markets are non stationary.
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Thats a good point regarding the fills. Most of my trades fill on limit orders but a few don't. I dont think of S/R has just horizontal lines. I include trend lines also. Take for example a trend line with an upward bias. Price pulls back to close to the trendline. All I know for sure is something is going to happen. Perhaps it will rebound and continue the trend. Perhaps it will break through and change direction. Nobody knows.
So I look at the candlestick formations, often on a lower time frame. If I see a reversal pattern I would enter long and place a tight stop below the TL. If I am right I am in a profitable trade. If wrong I am stopped out early for a small amount and I can look for other opportunities. Just my thoughts. Its worked well for me.
the larger the time frame the better it works...a line on a weekly chart will stop price better than a 15min. line..on the weekly line you will get some kind of rotation even it is 2 points on the ES....at least that is what i have seen.
Lets be clear about one thing for sure. Nothing works all of the time. The value of S/R is that it allows you to place a trade at a point where if you are wrong you get out quickly. If right your trade has room to run. Keep in mind that calculating S/R levels is morebthan just drawing lines on a chart. You must look at market structure on larger and smaller time frames. Otherwise you have random lines on a chart that tell you nothing.
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