Quote:
Originally Posted by John P.
The question is which forms better/stronger S/R?
It is my (current  ) position that when price rises or falls to a certain level but then quickly retreats or reverses in the other direction without spending much time at that level, it represents the greater imbalance between between supply and demand.
One side was completely and quickly overwhelmed by the other. Whereas a consolidation or base formation shows a condition nearer actual balance between buyers and sellers over a period of time. |
There really aren’t too many options to worry about where price action is concerned.
It does 1 of 3 things. Moves up, moves down or moves sideways. How heavily it moves is wholly dependant upon the quality & quantity of the participation. The significance of a particular level often has an effect on the behaviour of price action, particularly if the level was previously well defended.
If you got a reasonable handle on those levels & can recognize the behaviour as it oscillates around the various support or resistance zones, then you can wrap a simple technical model around whatever else you use, to execute your strategy.
As you quite rightly point out John, prices bust out of tight activity pockets to the topside when buyers outweigh sellers at a particular juncture & breaks down when the reverse sets up. Prices often re-visit these breakout zones & repeat the process if the original reasons (supply overwhelming demand or vice versa) still hold good.
Until that occurs, it’ll kick around in a state of equilibrium. It really is nothing more complicated or mysterious than that.
A heads up from a higher timeframe than the one you’re executing from, to adjudge whether you’re operating under trend conditions or range boundaries + any significant area or two to the left of the chart as a gauge to the potential near term destination, is about all that’s required to build a workable strategy.
That generic practice unfolds across all timeframes most everyday of every week. The force with which it moves away (& pulls back to test the breakout) from equilibrium will be influenced by what’s driving it (technical reasoning-data release-world eco event etc), but these handover zones occur with consistent regularity. Certainly regularly enough to profit from!!
How you play them depends on your risk appetite, strategy implementation & aims/expectations.
I don’t really place a graded emphasis (differing strength’s) on what constitutes s&r to be honest. If price kicks away from an obvious (several bar) base or a 2-3 bar ledge, I’ll mark that area up for future reference.
I work mainly via an hourly chart reference as my template frame, but it doesn’t really matter which timeframe a trader works off…….these occurrences unfold across all the different timeframe chart grids. As long as you’re primed into which type of trading conditions are being worked (trend or range), you can work your edge to suit the exact conditions.
Here are a couple recent examples from differing pairs to illustrate the above comments:-