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Why does Support and Resistance doesn't work
Started:August 14th, 2016 (01:34 AM) by sharmas Views / Replies:628 / 6
Last Reply:August 17th, 2016 (02:12 AM) Attachments:0

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Why does Support and Resistance doesn't work

Old August 14th, 2016, 01:34 AM   #1 (permalink)
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Why does Support and Resistance doesn't work

A thought and need some guidance and wanting to provoke some in-depth thought

We all use some form of Support and Resistance or Pivots

So why does it not work for us and for some it certainly works.

Are we putting the cart before the horse ....Most of us are trading electronic market and which is open nearly 23 hours over 5 days.

The exchange is open for approx 7 hours a day over 5 days

Are we trying to fit in our template with our pivots to match the exchange/institutional levels.

If we all used the same opening times of the market and daily pivot then why doesn't our levels get respected.

Anyone willing to share the in depth knowledge

Additional input

Maybe a better question
When does the Electronic Market open and close as this may hold the key to the Pivots and maybe we all are putting our pivots on the exchange opening period and hence it doesn't work.


Last edited by sharmas; August 14th, 2016 at 02:59 AM.
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Old August 14th, 2016, 01:34 AM   #2 (permalink)
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Old August 14th, 2016, 01:46 AM   #3 (permalink)
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Old August 14th, 2016, 08:42 AM   #4 (permalink)
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Support and Resistance is a very ambiguous term because it says nothing about the trade put on, where the stop or target is.

There's literally infinite variations of how you could trade the concept support and resistance.

You could put your stop 1000 ticks away and enter on support and exit a tick away and say you're trading support and resistance.

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Old August 14th, 2016, 10:03 AM   #5 (permalink)
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What happens to the S&P 500 when a new President takes office?

Why does support work? Because a large trader or group of larger traders have shown interesting in buying at that support level because they perceive that level to be a good price. Imagine you are in a real estate condo market where "fair value" is 100,000 for each condo unit. And let's say that a big real estate investor believes 90,000 is a sufficient discount price to buy additional units for investment. So as long as that specific investor believes 90,000 is a good price, any time a unit is discounted to 90,000, it gets bought up. Price will never fall below 90,000 as long as that investor still has capital AND believes that 90,000 represents good value.

If the developer then comes along and decides the previously listed units which were previously listed for $100,000 sells all of his inventory with a new list price of 80,000, and lets say the investor in this case only has enough money to buy 20 more units but the developer is willing to sell 200 units, then suddenly your "support" disappears because the person buying that provided the support is no longer providing that demand. And now supply exceeds demand.

So it is harmful to think about "support" as simply a line on the chart, and more useful to think about it in terms of a price that a fund will have automatic orders waiting and ready to buy. And when that decision changes to cancel those orders, then that "line" will also then disappear.

As a more direct answer then, while the open/close/pivots may all be the same for everyone, VOLUME is not the same, and more importantly your size quota for a target price range is not the same even for the same firm as each day goes by because as you accumulate, your free cash reserve diminishes as does your demand for the asset. You may have say $500M to start on Monday to buy the SPX at 2170, and then by Wednesday you've already spent $450M.

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Old August 14th, 2016, 10:44 PM   #6 (permalink)
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Look at globex high/low and higher time frames for better areas. Also, levels are more complex on CL, and the ES generally operates on multi-day S/R areas.

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Old August 17th, 2016, 02:12 AM   #7 (permalink)
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I think for most things, whether they are support, resistance or other techniques, the value is their ability for a trader to establish clear rules and follow them.

There's no simple magic about these things, it's how we use them and how they shape our risk management that creates the value

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