1. Hence I suggested using predominantly weekly levels, as they are pretty obvious. You can make this as simple or as complex as you desire. 2. I do use RSI (divergences & failure swings) & MACD (divergences/signal & 0 line cross). Nothing else. I also have bollingers on charts to measure potential profit targets, but you will find that good old S/R works just as well if not better. Yes, S/R is a subjective matter, as you have tons of them out there. But that is why this method does not rely on any intraday based level.
Not trying to complicate things, as this method is pretty straightforward. Using your example...if a market has been trending downward for three months, ask is below support, and rsi is reading oversold, how do you trade that? do you overrule the rsi and short anyway? thanx Vic
Firstly 3 months is just an example. If you want to keep it simple simple then yes, ignore all indicators & trade every single break. It's worth noting that for short term trading opportunities exist on upwards and downwards break of a major level, just pay attention to spread vs average oscillation based on momentum for instance in EUR/USD I pay 2 pip spread and on average there are 10-20 pips on offer, so that pair is perfect for SHORT term buy/sell. I do follow RSI/MACD on 240/60/5/1. Just because RSI on weekly/daily has gone passed 70 or 30 does not suggest immediate overbought/sold condition. Normally RSI indicates pullback/reversal prior to MACD, so MACD works as confirmation after RSI. Firstly I look for a failure swing in RSI (see attachment), followed by MACD signal cross & 0 line cross, though a lot of the time signal cross is sufficient as at the time MACD performs 0 line cross momentum is there ~90% of the time. So putting it in perspective that's how it goes: 1. I note all MAJOR S/R level on a weekly chart (in this example price has been advancing and approaching major Resistance); 2. I have 240/60/5/1 charts switched on; 3. Observe what's happening on RSI and MACD on all those time frames (getting complicated); 4. Let's assume there has been a slight pullback and RSI on 60 is below 30 and you see a failure swing (see attachment); 5. After a while MACD performs a signal line cross, by this time price could be very near Resistance level; 6. I would normally have a look at 5 & 1 min charts prior to making an entry. IMPORTANT!!! If RSI on 1 & 5 min charts is already above 70, then price might bounce off a Resistance level, so it is a lot more favourable if RSI is either below 30 or just above it displaying a failure swing; 7. Let's assume Resistance is @ 1.1000 & spread is 2 pips (points) I have a buy order @ 1.1002 as I need to see the Bid hit actual Resistance level (1.1000). That's it pretty much & don't forget that I personally do use tight stops, but it's up to an individual to work out range as far as stops are concerned.
This is a typical example in USD/JPY which is current. A current resistance on weekly is 119.86, which has also served as resistance in Nov 06 (monthly chart). You can see that RSI is nowhere near overbought & MACD is about to perform a signal line cross. So keeping it simple simple I would have my buy order @ 119.88. Everybody seems to be bearish on USD, well, looking USD/JPY and price is heading towards a major resistance level. Let's see what happens.
If i may comment , great thread. Looking at a situation where price is heading toward obvious S/R, just setting up about a 2-3 average true range (depending on volatility) zone around these points and looking for virtually any variety of abc patterns can help with timing, worth looking for. It doesn't matter a hoot whether price turns before or surpasses it, provided your looking for the entry. Good stuff.
Wow! great posts Romik. you have definitely provided more of an explanation than I expected. thanks again for the clarity.
OK, I now have 2 buy orders @ 119.88 both using a 10 pip stop. 1 long hold & 2 a short term trade. With FOMC minutes @ 2pm EST this pair can be pushed right through a previous weekly resistance of 119.86 which established itself back in Oct 06, USD has been climbing since Jan 05, so all we can be is remain hopeful EDIT: I have to stress that I am almost 100% of the time closed out @ requested price with minimum slippage. If you are to trade levels at which volatility is bound to increase I would advise to ask your broker whether they have any obligations to take you out at or very near your stop.
If anybody is to pay attention to RSI/MACD then IMO the chances of making a break and holding that level are not great, as: 240min possible divergence on RSI & MACD 15 min possible classic divergence in RSI & MACD If there was a break today then I would expect it to be more of a spike, so my longer term position size is going to be pretty small, but scalp is going to be my max $ per pip with a trailing stop.
Another example, not best, but on EUR/USD right now 1.3090 is a major support on the 240 min chart, have a look.