I am trying to implement support/resistance logic into my system and would appreciate any input on this question: Suppose that my system can recognize where the S/R areas are, how do you recognize that a support has held so you buy on the bounce? and how do you confirm a support has been broken so you can go short? Any specific bar/candle patterns do you look for? Usually volatility increases a lot around S/R areas, how do you look for low risk set-ups (which is difficult when volatility is high) Thanks.
I don't understand what you mean? In order to help you maybe you can clearify what you mean. Do you want to progam this in Tradestation or do you mean supports in a disrectionary system?
S/R from a visual view of a historical chart is relatively easy to spot. Are you trying to program in specific numbers to activate signals when these numbers are hit? Give us a bit more info, and we can help.
dozu, You seem to want an entry trigger. I think it depends in part on your time frame, ie if you identify S and R on daily bars, then it is not that hard to utilize an intraday entry trigger, say a pivot break or MA or trendline crossing. I suspect you are using intraday S and R however, and that makes matters more difficult because your entry points have to be dynamic as the S and R can change during the day. I suggest three approaches: 1. Identify a signal bar when you hit support, ie the last bar with a lower high. Buy at the high of that bar. 2. Use a short term oscillator, such as stochastics and buy when it rises through the oversold area. 3. Mark a swing low when price hits the support area, wait for it to rally and make a minor swing high, then buy on a stop at the swing high. short at the swing low. I don't really advocate any of these, but in a rangebound market they should work.
"Suppose that my system can recognize where the S/R areas are, how do you recognize that a support has held so you buy on the bounce?" ................................................ Maybe something like "average price x volume on the next two bars is greater than the (average price X volume)/ 2 of the bar that hit support, and that the low of the succeeding two bars is greater than the low of the bar that hit support." ? Good luck.