Buy on support or into resistence and bo?

Discussion in 'Technical Analysis' started by tenebre, Sep 25, 2009.

  1. tenebre

    tenebre

    Which is generally the safer or higher probability play.. buying on or near support levels or buy when a stock is likely to breakout and watching volume, moneyflow, etc.. and hoping it will breakout?

    I realise this has to do a lot with market direction, but lately a lot of trendlines have been failing for me.. maybe I'm better off looking for stocks likely to breakout of say.. double tops, etc. and organising a play around that?

    Thanks
     
  2. This is called Anticipation Trading. That is the style you learn before you learn to flip burgers.

    Wait on the signal to confirm the trade or your win loss ration will be awful and you'll be on the way to McD's for a job.

    Same on your trend lines - let the PA confirm the value of the trend line.
     
  3. Support and Resistance levels or zones are not trade signals.

    Your trade signals, whatever that may be, are independent of the s/r stuff.

    Simply, if your trade signal appears at a s/r level...take the trade. However, if your trade signal appears and it's not at a s/r level...there's no trade.

    Therefore, try to look at s/r levels or zones as a place where you've identified where key market participants are most likely to cause a change in supply/demand.

    In addition, there are dozens and dozens of different ways to compute s/r levels and zones.

    I'm serious, find a popular trading instrument and then search the internet for websites, blogs, forums, twitter et cetera for traders posting current s/r levels for the same trading instrument and you'll immediately notice that most of them have different s/r levels.

    In fact, there are a few active threads here at ET itself where guys trading the S&P 500 Emini ES will have different price places they call s/r levels from one ET member to another ET member.

    Therefore, the real question is this...

    Are the s/r levels you're following actually represent a change in supply/demand especially considering another trader is saying it's a different price level???

    Best way to find out is too compare your trading results (real money or simulator) when your trade signals appear at one type of s/r level versus another type of s/r level.

    For example, here's a list of the most common types of s/r stuff I see posted daily all over the internet for any given popular trading intrument:

    * Standard DeMark
    * Woodie
    * Fib Clusters
    * Camarilla
    * Trendlines
    * Volume Extremes
    * Candlestick Pattern Extremes
    * Volatility Extremes

    Many others I don't have time to name.

    Simply, the goal for you is to find a type of s/r levels or pivot analysis that improves the performance of your trade signals in comparison to your trade signals without confirmation from that s/r level.

    Do the above and you'll be way ahead of those struggling with s/r levels. Once again, support/resistance levels or zones are not trade signals.

    Mark
     
  4. ===============
    Depends Tb;
    on if its a bull or bear trend[long term & medium trend];
    & how old the bull or bear market is.
    Wisdom is profitable to direct:cool:

    Like a good bull or bear trend myself . especially in real estate;
    but buying near support in an old bull,[any medium time frame/any market] for example-bad probablity play:cool:
     
  5. PetaDollar

    PetaDollar Moderator

    I never thought I would disagree with NihabaAshi, who I admit is a far more accomplished trader than I am.

    There are plenty of simple methodologies that make money where the entry signal is price enters or breaks out of a s/r zone.
    I have developed a few myself. It's not really a big secret, just a lot of work.

    Going back to OPs question-- which is more probable, breakouts or bounces-- I say it is the wrong question, and I doubt there is even a meaningful answer. It doesn't matter which is more probable. Pick one (or both, once you get one down) and learn to trade it profitably.

    The key is your definition of support or resistance. Once you define it you have to prove to yourself on paper that taking an entry in that zone (or breaking thru that zone) gives you an edge. Once you do, you are almost ready to trade. You still have to work out your exit methodology and money management.
     
  6. speres

    speres

    well, fake double tops are good plays, why dont you just buy supp then?
     
  7. gsmcoder

    gsmcoder

    I tested pivot S/R on hourly and daily basis, and it is a bit safer to buy on S or sell on R, but the edge is very very small.

    Let's say you buy at a certain pivot level, an sell on +/- 50% retracement (which comes earlier you will sell) the next resistance. You wiil have ~52-55% chance to win.

    I agree the real question is what price levelcan be considered real supply/demand firewall?

    I think the pivot S/R as like the candlle High/low levels are very weak S/R levels.

    I still don't have time to test it back, but I guess the daily bar price chanels, triangles are more serious indicator for short time (some days to weeks) S/R levels.
     
  8. Breakouts is buying on resistance and buying on support sounds better doesn't it? Yet you should always try to trade the trend. This is a catch-21.
     
  9. speres

    speres

    You certainly dont want to buy in anticipation of a breakout, prior or on resistance. Thats just crazy for a newbie......
    It isnt a breakout until it breakouts!
    So, if you wish to trade breakouts you need to first define your supp and res. The higher the tf then the more meaningful your supply and demand areas.
    So the op wants us to tell him how to trade supp and res. Unfortuately we aint going to give it that easy, so post some charts, do a bit of work, theres plenty of people here to help u along....
     
  10. FB123

    FB123

    It all depends on whether the market is trending or not. If it is trending, you do not want to be buying support in a downtrend or shorting resistance in an uptrend, unless it is a very big level and you think that it will violently reverse off of it based on the immediate price action. (And if you play this dangerous game, you'd better have a tight stop.) Many minor levels will get taken out in a strong trend, so you will get taken to the cleaners if you try to fade the move into these points, which a lot of traders do. On a choppy day, feel free to fade a move into support/resistance all you want.
     
    #10     Sep 29, 2009