Hey everbody. I'm just wondering if there are some traders out there, which have a similar trading approach as me: I'm shorting stocks that are in a downtrend, but were able to recover to a resistance. And I'm buying stocks that are in an uptrend and test a support area. Maybe someone wants to discuss some details (e.g. how to define an uptrend)... I'm looking forward to your answers Regards from Germany DEM
DEM, Welcome There are many books out there regarding trading support and resistance levels. This site has a book review catagory...in it you will find reviews by our fellow members...take a look at Tony OZ s books...he keeps it simple and trades off of support and resistance...pattern recognition...volume...and scans which he has created...both support and resistance levels can be found intraday, a few days, weekly, monthly and so on...as you are looking at trends...he cautions that a close eye must be kept on the trend of the overall market...there is many ways to define or describe a trend...long term, short term, number of bars etc...we could really get in to it...in general though I always ask myself...why am I examining a trend?...what do I expect it to tell me?...is it helping me establish the path of least resistance for a given stock to move in? Along with a particular trend we need additional data, such as volume to help us confirm its movement. Moreover, after a while a series of trends both long and short may begin to form a particular pattern...its possible to recognize these patterns which are made up of trends...combined with other supporting data and an eye on the trend of the market you can trade successfully...this of course goes much deeper than this and you could in deed write a whole book on the subject...but in short thats how I kind of view trends in a nutshell.
I gotta get a hold of his books. Which one is the best one? Also, Linda Raschke's Street Smarts has a couple of great patterns. Three little Indians is an obvious one and a good one based on S/R. If the market tests approximately the same support or resistance in a short time frame, wait for a major move either way. That's the basics of it.
Pivots with S1 S2 S3 support and R1 R2 R3 resistance have been working well, and I don't think are that widely followed.
Pivot Points work best on stocks/futures with wider daily trading ranges. The previous day high, low, and close are used to generate a pivot, 3 support levels, and 3 resistance levels. Price crossing the pivot on an up move is bullish, and a cross below the pivot on a down move is bearish. Once the price penetrates the pivot, then there are 3 resistance/support levels for the stock to test. These levels are useful for taking or paring profits. A wider trading range is desired, otherwise the resistance/support lines will be so close together, and not really give a good trading opportunity.
Is it a wise strategy to incorporate both support / resistance as well as breakouts / breakdowns in a trading plan? Are there any fundamental flaws in combining these methods together? Also, I've been thinking a lot about using point & figure charting to detect these moves. It seems to eliminate a lot of noise while at the same time, making it easier to spot important price points/patterns. Any experienced users out there? Thanks.
I usually define a trend by a 50 SMA. If it's going up, I only trade support. If it's going down, I only trade resistance. In sideway markets I trade usually both. I always look at a candlestickchart to see reversal formations. So I can set a close stop loss and have as a swing trader a huge chance. Greetings DEM
you almost have no choice : you need breakouts and support/resistance strategy. maybe not active at the same time but always ready to get into action. when a market is consolidating sideways, all breakouts are fakes (by definition). If you only trade this way you are chopped to death. in trending markets, you can still play support and resistance but always on a retrace. the way describes by DEM is an example. the most difficult aspect is to know when the market is trending or not. The SMA tells you that but with a lag. you may also ignore it and focus on good stops to know when the market change, but I find it more difficult to do (fakes are sometimes really nasty) neo
They are actually in a dwontrend, so I only trade resistance. So I would short them below 25.8 and close my position over 26.2 That's almost no risk... DEM