Many words written on Elite Trader revolve around phrases like 'Price Action, 'Support' and 'Resistance'. This question involves the use of 'Support' and 'Resistance'. Any insights are greatly appreciated. Let's assume that the instrument you are trading has Support at 100 and Resistance at 110. Let's also assume that you have a Risk tolerance of approxiamately 2%. You want to buy at support. Would you wait until the price moves down to 102 where you place a Buy order and place your Stop at 99.75? Is this 'buying at Support' ? After you are in the trade and it goes your way, would you place an order to exit at 108+ and then Sell (~2% from Resistance) ? Is this thinking of S&R too simple ?
Your idea of S and R is good to set possible entries and exits. S should support a long entry. R should resist its continued run up. I think you may be off on the 2% rule. I've seen it applied as a % of max loss or trading power not necessarily the entry or exit price. If you want to use a % rule, you may want to consider using ATR and some % of it. I don't use % myself so someone else needs to chime in on how they use it.
This is approach you said lacks confirmation, price can keep going down. it a good help to see confirmation of support before buy at support. Support only potential support until realized. Try like this: As price approach support, examine price action with a more detailed time frame (smaller/shorter), see if a resistance breaks in that more detailed time frame. The weaker resistance break a good entry, the strong support a good stop. If you no understand I can draw picture.
Thanks for the feedback McKinneyseller and Saheem. I was surprised to get so little feedback on this question. I chose 2% because I'm most comfortable with that amount of risk. Still, I will be looking at some other methods including the aspect that Saheem touched on. As I understand Saheem, if the price is very forceably moving toward the Support level it is probably best to trade a bar the comes close to it but closes solidly above it to enter ?? Also, I see a lot of titty moves where the price takes out support but then closes with a higher close to the open and above the support level: this seems to be an indication that the support has 'held'. I plan to keep watching this on the ES and some selected stocks.
In my experience, and I've been watching price bars for a very long time, if you constantly search for what once was support to be support again you will lose over the course of time.
Food for thought IMO your thinking is a bit simplistic becauseâ¦.Context with regard to S&R is everything (Itâs as important as location is to real estate) A few things to be mindful of (use to establish context) Up / down day Inside / outside day Time of day youâre trading Type of day (ranging or trending) Time frame youâre trading How youâre trading Time frame of the S&R youâre referencing Remembering it will work till it doesnât On and on and on and onâ¦. Regards RN
sorry i am not sure i understand you question. English is third language for me. i will put pictures to explain better.
This pictures are decline to support. They are both show one same decline but #2 picture show more details. a strong support is on bottom of both pictures. the more details #2 picture show many weak support violations and weak resistance who remains on the way down. the weak resistance remaining is rectangle shape consolidated price and v shape high anchors. To confirm the strong support I am wanting to see the first weak resistance do a break, I am looking at the top of the v shape anchor high who is the three bars most close to the right side. when I am thinking price will go up at support, I am looking for it to stop go down first , and my next focus is what is first thing to stop it from going up, when this thing dies is when I do my entry. This is not a medicine to all problems, but my opinion says it better than only do a guess that support is there.
Dont forget to judge "pace" at any S/R http://www.elitetrader.com/vb/showthread.php?s=&postid=1707749&highlight=#post1707749