I appreciate your kind words. I always recommended to my guys to learn order flow, and read about behavioral finance. It will give you a better insight about concepts of "fear and greed".
Many of the new traders treat it as a moral value, but it's actually the excessive parts that affects and cloud our judgment.
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VWAP and VWAP bands are a very important concept to keep in mind when following the market through the day. From what I have read, when a trader acts on behalf of a customer, the commission is all derived from where they have been able to enter and exit in relation to the VWAP.
So if buying, their goal will be to buy below VWAP - the further the better. The opposite for selling.
VWAP and bands have a habit of being respected through the day. Certainly not the only thing to watch but it does give some insight into where there may be reversals in conjunction with other levels of interest.
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Are you referring to supply and demand zones or just support and resistance?
It might be a idea to look into supply and demand zones if you have not already, especially if day trading. Have only just started using this and have been getting some good results.
Instead of using a 10 or 15 min chart to find these levels, have been running a 1min chart. When it comes into a level of consolidation, mark out the upper and lower levels and wait. I don't go for breakouts, have been watching and what will usually happen is a fake-out in one direction of the consolidation before either returning to the range again for a bit or it will turn and run after the fake-out.
What will usually happen if it sets up for a trade, is that price will come back and retest the consolidation area after the actual move has started. This can then offer a decent trade with less risk then trying to catch breakouts. The smaller time frame helps find the noise in the market that is useful.
There are a lot of good explanations about supply and demand but here is a short and sweet intro to Supply and demand that I stumbled upon watching random trade YouTube clips. https://www.youtube.com/watch?v=cYrnoQBZFH0
For support and resistance instead of looking for arbitrary levels, a different way of approaching it is to plot out Low Volume Nodes (LVN) using Volume at Price.
The idea behind this is that these are known levels where price has not traded as much as at other levels. Either price blows through these levels or price has been hitting them and rejected immediately (give or take X ticks).
As opposed to High Volume Nodes (HVN) which are showing where price has spent the most time with consolidation or market action. HVN are showing where the market has found value.
Start tying LVN's in with order flow on a 5+ min footprint chart coming into these levels and it can give some good indications for low risk trades.
As Matt said, order flow is a great tool to see past the 1 dimension of candlestick charts. Everything else is a trailing indicator based on already old information.
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They are indeed psychological levels, and that's why they do exist and work.
The chart below has a yellow line, which I had placed on the chart the day before this move. That yellow line indicates possible support at 3006. Sure enough, after the market opened and went down to that area, the market stopped and reversed. Sure, it actually went a few more ticks down. But guess what, it did reverse at what is seen as a big, round number, i.e. 3000. That's why people usually talk about support or resistance areas rather than pinpointing levels to the tick.
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Of course, 3000 has no intrinsic value per se. There is no consensus amongst people in the market as to why the collective shares underpinning this specific index should magically converge on a round number like that and turn around (at least temporarily).
So I think you are right, the reason is psychological. But that's precisely why, while I would never guarantee that price always reverses at a round number, I would bet you that there will be almost always some kind of reaction going on around those psychological levels that the market has come to define as support and resistance.
Edit: just adding a bit more substance, I think most would agree that the reason Technical Analysis is popular is that it is a self-fulfilling prophecy. Because it has been popularised that means that many people will look for certain patterns, such as price crossing the 200-day moving average, or the 50% fibonacci retracement... and because many people will bet on price doing something when those patterns are matched, it kind of self-reinforces the concept.... it's all in the mind.
Edit 2: I also want to add, I do not believe that all support/resistance levels are necessarily psychological... there may very well be reasons beyond Technical Analysis that I do not yet know or understand why price finds support or resistance where it does. I'm thinking simply somebody defending a level or other reasons.
Last edited by xplorer; February 6th, 2016 at 05:09 PM.
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From what i've found so far, looking at charts for S/R is really hit and miss. Personally ive found that the Volume Profile gives real reliable levels to make plays from. and if a price doesn't hold, you know it was an actual failure to hold and not some mistake of misreading where support might have been.
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I don't think anyone is saying price action and S&R levels can't be used. The main problem as the original poster stated is that the S&R levels are very subjective. What one trader plots out as S&R might be completely different then another depending on a lot of different factors.
Price action, candle stick patters and S&R have been around for ages but with futures we are also given more market information that can show what is happening behind this first layer and it shows what is moving the market and where these levels actually are in real time. Order flow can highlight at what price level large trades have been initiated to stop the market moving higher and reverse it or it can show trades building to push through potential areas of S&R.
Order flow and volume is just another level of market information that we have in futures, in the case of order flow, its real time indication of what and who is moving the market. Its the reason I switched from FOREX to futures so that it wasn't blind trading anymore, relying only on trailing indicators of what was really moving the market. IMHO price action and even candle sticks are still trailing indicators that then require that we work using historic chances of success that it will also follow the same action that happened in the past.
Order flow can show you what is actually happening in each and every candle as it forms and volume profile/analysis shows exactly at what price levels and to what degree each price level is historically significant, where value has been found by the market and how price moves in relation to the known value.
Don't get me wrong, I still use price action, candle sticks types and candle stick patterns for further confirmation but this is usually after the trade has been initiated.
Personally, it just made sense to seek out the most up to date information to base trades on and for me I found that in order flow/volume profile.
Each to their own but, that's the path we all must find ourselves as traders.