how you guys deal with overshoot or undershoot of support and resistance level? How to know whether price would overshoot or undershoot?
Thats a difficult question but i do know that stops sometimes are hit to take out orders before reversing. SO if you can just imagine where people are more likely to put their stops, then i think price will go to that area before reversing. Again, the point is to take out stops, before heading in the intended direction. But with this said, this is trading, nothing happens with 100% certain all the time, so its a probabilities thing. Time watching charts should help though.
First of all you will never "know". Become intimately familiar with your trading symbol. If after becoming familiar with symbol and you still feel like it is a coin toss, look at another symbol. Obliviously range bound days will respect S/R more often than not.
You can consider things like momentum & volume & yada yada Ultimately you cannot know, you are looking for certainty for something which has a large degree of randomness. So given this how can you still win given this scenario. Two things newbies do, they look for certainty & they increase their stops to improve their win ratios ( in their eternal search for certainty)
this is a good feeling, it means you are on the right path, learn to win a coin toss. Beware the dark side, beware of the need for certainty.
Homework (to be done on 50 occurrences of the setup in your trading time frame): 1. Choose an S/R level (trend line, parallel channel line, previous horizontal S/R, moving average). 2. On smaller time frame chart (such as 1-min chart for 5-min traders, or an hourly chart for very short term swing traders), compare the patterns of trades where S/R holds (with or without an overshoot) to the patterns of trades where S/R fails. 3. Note if any particular price action pattern occurs more often than not. 4. Use patterns that occur more often than not as a guide to setting up rules for trading off S/R levels. 5. Repeat for each type of S/R level. As a 5-min trader, I use the classic 1-2-3 reversal pattern on a 1-min chart. Highest probability pattern I've found so far. http://www.dacharts.com/123.htm The examples show the LH and HL reversals, but DT/DB's and FBO's work just as well. I also tend to take the early entry (the "X"), because I'm cheap these days.
The need for certainty is an immediate disqualifier, IMHO. If you're a perfectionist, or crave certainty, you may as well feed all your money to your dog or cat, because you'll have a lot less sh*t to deal with than if you attempt to trade for a living.
What about a longer time frame peek, volume, and maybe a certain ema? Oh, throw in a little good vanilla ice cream and a bicycle ride.
Oh, one more thing: Once you select the patterns to trade off of, take screen shots of all variations of them at the hard right edge of the chart and tape them to your wall until you've traded them a lot, because the patterns look a bit different in real time then they do in the trading books, after-the-fact.