Romik, why does this make more sense than selling after bouncing off resistance and buying after bouncing off support? Not arguing, just trying to understand.
bluedemon77, There are 2 ways to trade S/R. You can trade the breakout method or reversals. Both are good ways to trade but I have found that the breakout method is better for catching big power moves. The key is to make sure you are identifying you S/R levels correctly for the timeframe you are trading. Romik, Good job here, as you know I have never traded currencies so I will watch you as you go. All the best to you. Gary
Hi Gary, thanks for the e-mail, hope you had a nice time over Christmas! Bluedemon77, I did not say that breakouts/downs are better than reversals. Put it this way, if price has been travelling in 1 direction for the past 3 months approaching a key level (S/R) than you do have a choice of either going with a trend (going for a break) or going counter trend. IMO counter trend is also great, if you are seeing confirmations in TA. I have spent a while looking at counter trend strategies like various types of divergences, which I use both for swing trades and intraday. There is no better or worse, I simply pointed out 1 method which is based on simplicity, rather than complex variables. Have a look at 1 min chart on EUR/USD for instance recently, every time it broke 1.3216 (previous R, later became S) there has been an opportunity to make a quick buck, when price was climbing and during the pullback. Just keep a tight stop and re-enter same level.
Gary, I'm not following you when you say the breakout method is better for catching the big moves. Do you trade the first pullback after the breakout or do you usually dive right in after it breaks S/R? If I understood Romik's last post, he's saying that the time to trade is when the price is approaching support/resistance. So I guess it depends on how close you are to S/R before you can say you are "approaching." I try to trade when the price is heading in the right direction, but still pretty far away from S/R. That way, even if the breakout doesn't happen, I end up with a scratch trade instead of a loss.
I need to see price breaking level, I normally have a specific level as a limit order way before price gets there, so most of the time I will get filled at that price, no matter how volatile the market is at the time, than again I am not using a conventional futures/forex brokerage.
What I was getting at is if price breaks out of a significant support or resistance level a lot of the times it will do so with a lot of momentum. I don't usually go for big moves I go for fast powerful moves. On the other hand I do trade like Romik for my long term trades. If price is moving up towards a major resistance level I go long and see how it reacts once it gets close to that level. If it appears that we could get more movement I stay in and hold it but I am ready to make a quick exit in case of a reversal.
OK, I understand. Do you attach a stop order to the limit order or do you just keep an eye on it after it fills?
Gotcha. I'm just wondering if either you or Romik ever backtested buying after a breakout vs. earlier in anticipation of a breakout. I had a hard time backtesting this kind of thing because although it's easy to look at a chart and see support and resistance, writing a program to detect it automatically isn't too easy.