Indicators are liars! Support and Resistance Trading for the S&P emini

The 79.75-81.00 area has worked very well this morning.

Important thing to note...if an area has been used once already in a day, its odds do become reduced upon later hits of that area. I would only take this area again if I saw a good set up like these last 2 hits at the area.. So please do exercise caution and look for a good set up according to your system.

 

it's odds of holding or it's odds of breaking?

 

odds of holding become reduced.

Think of the market as battering ram, and our levels as a big gate that they are trying to knock down, the first couple of attempts at the gates (level) might hold but the more it gets battered the lower its odds of holding become.

 

Although I posted this in another area, I fealt it was also appropriate here in relation the to bigger picture discussion that developed this weekend.......

7:30 am - Price =1278

Unforeseen news events are a less common but always an eventful part of this game. It is one of the very real risk factors for holding any financial instrument “overnight.”

From a trading standpoint there is no real need to analyze the macro impact of the government “bailout” of FNMA/MAC announced this weekend.

It is better to analyze how the price reaction falls into our macro price structure, and then see where price is in relation to the logical flow that has been developing within this macro structure.

Our macro price structure right now is a 1300-1200 bracket.

The most recent price flow saw price break below the 1280-1260 consolidation area to move to the low end of the bracket, where a pause and responsive buying was expected.

When a strong consolidation area (1280-1260) is broken to the downside, we expect the bottom of the range to act as resistance is the immediate trend is to continue lower.

If the range is re-penetrated, we expect price to first move to the other end of the range (top), and then pullback to opposite side of the range (bottom).

The rarest, and most powerful move of all, is if price moves entirely back though the range altogether.

What this all means is we will treat this massive gap up, as simply a pullback into consolidation (1280-1260) for our day trading view, and nothing more than staying right in the middle of the 1300-1200 bracket in the macro term view.

If we pass right through 1280 to the upside this could be a powerful sign of a move to at least the top of the bracket.

The expected view is we wil consolidate inside 1280-1260 first.

Finally if price moves below 1260 to fill the major gap, then we will monitor 1260 for resistance just as we would havge done today had there not been any type of weekend news announcement.

The trading trend is up, and we already see there has been two tests of the 1280 move higher after “momentum higher” (the gap up), so this is always a sign to be more cautious for more upside in the short run.

The 1260 consolidation low aligns nicely to where the trading trend turns down, so with all the excitement of a gap up this morning, we need to trade with caution early, at least in terms of expected follow though for trades, and see how price and volume flow settle in relative to the 1280-1260 consolidation area.

As always our hope is that there is just enough volatility to have trades move slightly in our favor after entry to reduce risk from a trade management standpoint. As long as this type of volatility is in place we ill be fine no matter what happens.

 

"Think of the market as battering ram, and our levels as a big gate that they are trying to knock down, the first couple of attempts at the gates (level) might hold but the more it gets battered the lower its odds of holding become. "

Would you say that this is true in both directions? ie if a resistance level is broken there is a lower chance of it acting as support than there was for the resistance to hold in the first place?

Just received this question about a statement I made earlier. I took a short again at 81.00 at 08:36, my reply is below, using that trade as the example.

I would say that if a strong resistance level is broken the odds of it working as support is high.

So every time a resistance level is hit, its odds are reduced. Finally the level gets broken and the market flies through. Its almost like resetting that levels strength or rebuilding the gate now as support. And we go through the whole battering ram process all over again.

The reason why S/R works is because of the emotion associated with the level. MOST BUYERS of a market kick in as we hit RESISTANCE now this may sound strange and contradictory. But when the sellers kick in at that level they are left high and dry, hoping and wishing to get of their trade break even. Take a look at volume on the short I just took on a 1 min chart the closer we got to my area the higher number of buyers as market participants.

Support and Resistance levels are areas of high emotion, and reactions at these levels are usually violent, the short I just took now is a good example of that.

 

Hello

many thanks to exhibit your way of trading. this thread is very interesting.i follow you from france.
question:
to draw up the S/R, do you use a 24 h chart or only 9.30 am till 3.15 pm eastern times?

 

24hr, I start watching my charts from around 2/3am EST.

I love Paris, hope to visit you guys again soon

 

very nice weather today.
it's a shame to stay on the screen this afternoon!

 

EMC2 Thank you kindly for that analysis...so good I even printed it out, and now have it on my wall : )

Your participation on this thread is always appreciated and welcomed.

 

For anyone just joining us now for the open. Attached are todays numbers, and if you would like them emailed to you in the morning when I complete my analysis please sign up to the newsletter on the blog, so many of you already have, thanks : )