They work because people are looking at the same thing. 1) http://prntscr.com/c9tk0y 2) http://prntscr.com/c9tkbj 3) http://prntscr.com/c9tl5z 4) http://prntscr.com/c9tlhl 5) http://prntscr.com/c9tltm 6) http://prntscr.com/c9tmao Some rules I figure out 1) Price must breakout (momentum!), not drift from below and above the resistance/support point. 2) When price pulls back, it must "drift" and not plunge/spike. (However I find that price that pullsback SLIGHTLY faster than the breakout also work sometime) 3) Trend is important, never try to sell the first break of support retest in an uptrend, wait for an established trend. 4) Don't trade SR within a consolidation, preferably trade the extremes. 5) Don't trade pullbacks that look like new formed support or resistance. (Price should breakout, close near the lows/highs of candle then "drift" back into support turn resistance vice versa.) 6) Don't trade pullbacks that just bounced off resistance/support. 7) Obvious swing points count as SR only! What do you guys think?
Unfortunately, you will find that support/resistance is in the eye of the beholder. I am afraid you are curve fitting with the rules you are outlining trying to make sense of the data. For example, looking at the chart below you would think you have obvious points where you can draw lines and trade off of. However, this chart was generated by flipping a coin and is not a real stock. There is a great article somewhere about putting random lines on a chart and trading with them (google Grimes perhaps?).
http://prntscr.com/c9tz9z http://prntscr.com/c9tzn7 Some of them? I see them like that. Which rules do you see as curve fitting?
Yea I know, but honestly think price will turn there if that was a real chart because other people are looking at the same obvious lines. So which rules am I curve fitting?
Correct. If you would review these charts in 30, 60 and 120 days, you will end up each time with different lines. If three people draw lines you probably have three times different results. First thing you need is something that will produce each time the same result. In 30, 60 and 120 days the result should be exactly the same. If not you cannot use it is you are never sure about the outcome. Something like 1+1=2. This result will always be 2. No interpretation possible.
It depends what you mean by "looking". They actually worked better, by many accounts, before people were so widely "looking" - and Dr. Alexander Elder spends quite a bit of the first part of his book Trading For A Living answering your original question. You keep scattering words like "never" and "must" throughout your observations, which really detracts from the fact that some of them do contain some truth, backfitted though they are. I think there's quite a lot of woolly thinking around, about the subject. Specifically, many people have made the mistake of conceptualising "support" and "resistance" as collective entities, rather than mentally dividing them into "previous S/R" and "future S/R". From my own observations of the charts from which I trade, myself, the main factors which determine the ever-complicated probability of previous S/R turning into future S/R are (i) the number of "touches" and (ii) how recent they were (but there are plenty of other factors, too). It's fundamental to me to think of all these things as probability functions. Just my perspective ...
what one sees depends of his definition of the trend, and of support resistance if definition is voodoo, then its tarot cards if definition is legit, then one got a working method
Can you post some charts of trades you took or something? I want to see if I see differently and ask questions etc.