There are many ways to view support resistance as well as any other technical things we all may look at to form trading opinions and enter trades. Fibonacci levels, stochastic readings, pivot points, ect, in addition to s/r are simply guides you must use to look for opportunities. I cant say what is right or what is the wrong way to look at s/r but I can briefly share the way I use them. I describe my style of trading as selling breakdowns of support and buying breakdowns into support or buying breakouts of resistance while selling breakouts into resistance. I look for specific chart patterns ( consolidation and exhaustion )that generally get resolved for trend moves ( 8-24 points on the NQ's ). I use support and resistance as guides to find out what type of trade it will be, profit potential, and of course likely price level for occurrence. Now, once I have established important levels of S/R I then look to the 30,60,120 min charts for patterns that may tell me what to expect to occur at these levels. Also there are different types of support and resistance and all too often I see traders lumping S/R into one general category. Here are some different forms of S and R: 1. Price 2. Moving Average 3. Gap 4. Exhaustion 5. Trendline Each one of these types of S/R can act quite differently and must be approached in subtly different ways. The key is to be consistent in the way you use S/R and develop methods that you can easily see. In summary, to answer the posed question, I use chart patterns at S/R to go short or long depending on the situation. There are times that I may look at an area as resistance and look to go short there then as soon as 30-60 minutes later it may become an area to go long. The way price and patterns develop at certain S/R levels is the thing I feel is most important to view in looking at support/resistance. If one says " I buy support and sell resistance " that can be as much nonsense as buy low and sell high. There is good money to be made in buy high and sell higher, and sell low and and cover even lower. I would say I do both, in addition to buying support and selling resistance, whatever the market tells me carries the least risk while providing adequate reward for the risk assumed, as well as what is most likely to actually occur. Main thing being don't get caught up using only one way to view support and resistance and use it like anything else, as a guide to trading decisions and not a be all and end all trading trigger. AllenZ
It takes most traders a long time to understand the significance of S/R. While a rookie will wait for a resistance level to be violated before they buy, the pro's short resistance. Likewise, a rookie will wait for support to be penetrated before they take a short position. The pro's buy support. The significance here is the pro's take the lower risk trade while the rookies take the higher risk trade. The reason the pro's do this is because they aren't subjecive. In other words, they bail out immediately if it moves against them. Tanking through support is without a doubt a big negative just as blowing over resitance a positive, but that's when things start whipping around, which means you have to give it more room (more risk).
support and resistance is relative to the eye of the beholder. Aaron, to answer your question, I calculate my support and resistance for the NQ's and come up with an exact number. Then I place my buy right at this number. I place my stop exactly 1 tick away! I put my order in early so that if only X number of contracts get filled at my buy price, then thats me getting filled. I only use daily and weekly charts. publias, you da man! TAguru, I think what u just described is called pivot trading. Most would rather buy a breakout over resistance rather than short it. IMO, these people aren't to bright because they are buying into their mistake. They say they are buying a breakout over resistance, but if it breaks thru this "resistance" then it isn't really resistance at all. So after their misconceived idea of resistance is broken, they buy. Sounds like a coin toss to me. it all comes back to the fact that S&R is a totally relative thing.
I like to sell resistance when I think the subsequent pullback to support won't hold, and vice versa for buying support. Example from last week, what IDPH looked like on 7/8.
lundy, S/R are interchangeable. When resistance is broken, it does not prove that it really wasn't resistance but that it was overcome by aggressive buyers. It then changes to support (those that shorted the breakout will buy to cover if it comes back down). Isn't this the basic theory of S/R?
Hmmmmm, Trust me when I tell you I was BRIGHT to have played breakouts all through the mid to late 90's. EDIT; I have decided to delete the bottom portion of this post. No need to be rude... Publias
Although I tend to agree with publias, I think strictly entering on obvious R/S breaks (and subsequently setting stops at same levels) is at best 50/50 these days -- you really need to see in what way those levels are taken out -- using volume, news, consolidation patterns, etc. However, using support and resistance levels to gauge information -- where certain price actions should occur; where certain types of traders will enter -- is always a good idea.
I think the answer to the question is all of the above...Like alot of others have been saying, there are "layers" of S/R which all have different degrees of importance...I want to give credit where credit is due to Joseph Hart who describes one time frames ability to reverse the momentum of another time frame the classic "RePo" trade...I think that is basically what S/R trading is all about...i.e. finding the minor S/R that will lead to highly probable "tests" of the major S/R and a "potential" reversal (or) breakout thru the critical S/R... Maybe an example of this recently would be the ES testing 935 area which had been previous swing support now turning into swing resistance...The momentum was strong on one time frame until it ran into the stronger momentum on the higher time frame (i.e. the more important S/R)...