Building upon this theme, at what point do you consider S/R to be busted? A close through the zone, a trade through the zone, or neither?
I find this to be a very critical issue. I trade Emini S&P. I consider support or resistance to be broken much like a tipping point or point of no return. As an example I often see a support or resistance extreme broken by three or four ticks (which may be stop running) but then the support or resistance holds. It appears to me, but I could be wrong, that a move of about six ticks past support or resistance is generally the tipping point or busting of support or resistance for the emini S&P. Mark Fisher in the "Logical Trader" uses a tipping point or point of no return in his opening range breakout method. I thought this was a pretty good book also. Nutsneal PS NihabaAshi I really enjoy and benefit from you posts. Thank you for contributing to this site!
NUTSNEAL- You bring up an interesting point. How do we classify a break of of S/R? I've struggled with the same thing for a long time. Is it a close through the HH/LL? Is it trading a tick through the HH/LL? Is it 6 ticks through the HH/LL? My answer is that I don't know. This is precisely the reason that I stopped trying to trade with the trend, and started to fade it. I couldn't find any discernable way to determine what constitutes the break of a RH/RL in a trend with any kind of consistency. So, if anyone has any advice on how best to do this, I'd appreciate it. Although, as soon as I started to fade the trend, I saw my success skyrocket.......
I will also point out that Niha's discussions of price action and price patterns were extremely beneficial in my transition.
The switch from known support to resistance takes patience and evidence. Note the chart. These areas routinely get pounded to confuse the market players. Often times there are more than one type of support or resistance that convege all in one spot like it did at the low yesterday. If you do not wait for evidence, then you are guessing. Aggresive traders often speculate and that's OK but realize it when planning the trade. Reversal sticks often put the final nail in the coffin. The longer you wait for evidence and convergences, the more reliable the trade.
Things change fast don't they. I put some notes on the updated chart to help explain where this is. If this breakout is really bullish, any dip in the price action will be gentle and low volume. It does not have to drop all the way down to 11164 to confirm that resistance has broken and is now support. The price action may do any number of things. The idea is to let the market speak and empty your bias while you listen and measure. Nice move today.
Great post Humble1. I appreciate the charts with annotations. I'm especially intrigued by the idea that you define a break of support/resistance as it being used as resistance/support. That makes good sense to me. My question, however, is which of the RH/RL's do you consider S/R? That is, on your charts there are many RH's/RL's that you do not annotate a S/R levels. Why? Why are those ignored in favor of others?
There is major support and resistance and there is minor [or secondary] S and R in every time frame. Some times the daily chart will locate these areas, and sometime the weekly chart will, and then again so does the 60 minute chart. Magee's book does a good job of discussing the location and tactics behind trading S and R.