From my observation support and resistance is generated from significant points in the past. This includes prior highs and lows (easy to detect), but also prior gaps (not so easy to detect).
I would like to know, whether anybody uses those gaps to determine points of support and resistance or attractors (magnets) for the purpose of intraday trading. From reviewing price action over a larger number of futures contracts I have found these points significant.
I even think that they are more significant than naked point of controls. The reason is that over a longer period such as a year the POC is difficult to calculate, and larger traders therefore take information from a daily chart and not from a tick chart with a lookback period of 250 business days.
S/R levels I tend to watch
The points to watch are
-> naked daily highs (ETH & RTH high)
-> naked daily lows (ETH & RTH low)
-> naked daily closes (last price or settlement price)
-> naked daily opens (open of the trading day and regular open)
-> naked gaps
-> hidden gaps
Naked and hidden gaps
As gaps are built from a close and an open, I usually treat close and open as a pair. Even if one of them is covered by later price action, I would still consider them as naked, if the space in between has not been filled.
The difference between a naked gap and a hidden gap is best shown on a daily chart.
-> The naked gap is a gap, which was not filled by price action on the day when the gap appeared.
-> The hidden gap is a gap, which was only filled on the day when the gap appeared, but not afterwards.
Example
Below is an example of the last 11 business days of trading of CL 06-13. The data is ETH and the gaps identified are calculated from the settlement price (at 2:30 PM EST) and the open of the extended trading hours (ETH). I have only shown 7 out of 10 gaps, just to avoid that the chart becomes too congested.
After Friday's close there are two naked gaps and two hidden gaps, which have still not been covered. And of course there are more gaps outside the scale of the chart, for example
Would you take the gaps from backadjusted or non-adjusted contracts?
above price action:
- hidden gap 94.56/94.64 from April 11 (merged non-adjusted)
- hidden gap 94.84/94.92 from April 11 (merged backadjusted)
- naked gap 96.93/97.19 from April 3 (merged non-adjusted)
- naked gap 97.21/97.47 from April 3 (merged backadjusted)
below price action:
- hidden gap 85.56/85.70 from December 11, 2012 (merged non-adjusted)
- hidden gap 83.91/84.01 from July 11, 2012 (merged non-adjusted)
- naked gap 81.64/82.41 from June 29, 2012 (merged backadjusted)
Now what would professional traders tend to watch, backadjusted or non-adjusted contracts?