Scalping - What S&Rs to Respect?

[George C]

Dear all,

When scalping and entering trades on a 5M chart, which S?Rs would you be more inclined to respect - those found on the 5M chart, or those on longer TFs - for example, 1H, 4H or 1D?

I'm having a lot of trouble with it, because if I go with 1H S/Rs, then profit potential seems almost unlimited; but, then, for all I know, the price will bounce off the 5M S/R, leaving my beautifully designed trading strategy in the mud.

For the sake of the argument, let's assume that both TFs' S/Rs appear equally reliable - in other words, price has bounced the same number of times off 1H and 5M S/Rs.

Is there a hard and fast rule that long-term S/Rs take precedence over short-term ones? Conversely, is there a recommendation to stick to your chosen operating TF's S/Rs (which, to the best of my knowledge, would not be very consistent with the rest of advice that I have read on this forum?)

[daydreamer65]

Originally Posted by George C

Is there a hard and fast rule that long-term S/Rs take precedence over short-term ones? Conversely, is there a recommendation to stick to your chosen operating TF's S/Rs (which, to the best of my knowledge, would not be very consistent with the rest of advice that I have read on this forum?)

Long term S/R. When you realise that the longer time frames
are made up from multiple short time frames.

ie 4H = 48 x 5M

1D = 8 x 4H = 384 x 5M.

With S/R do not forget round numbers as well especially 00.

[George C]

Thanks a lot for your feedback!

So in other words, let's say if you saw the price heading to the level that the 5M price has bounced repeatedly off; all other things being equal, would you go long if the long-term resistance was way about the 5M one?

[daydreamer65]

Originally Posted by George C

Thanks a lot for your feedback!

So in other words, let's say if you saw the price heading to the level that the 5M price has bounced repeatedly off; all other things being equal, would you go long if the long-term resistance was way about the 5M one?

Once the price has cleared the 5M S/R & the next candle has opened,
T/P next level, S/L just below previous S/R, but always be wary of
the retrace as price always likes to re-test & go where it has been
before.

This is why short T/F trading can fool the newb, they go long,
price retraces they get out, they go short, price reverses etc.
Then complain they are being stop hunted.

Always be aware of the peak & trough action of price.

[George C]

Thanks for your prompt feedback again - but now I'm somewhat confused.

I thought - and correct me if I'm wrong - that the general gist of your original post is that long-term S/Rs take precedence over short-term ones. However, how does that square with your recommendation to account for 5M S/R movements in setting entries, TPs and SLs?

[pipbull]

George,

It's important you realize that the lower time frame you use, the less of an overall picture you are getting of the market.

You can use low time frame S&R while keeping the big picture in mind. For instance, if you see price bouncing off a 5M resistance level several times you might be tempted to short. But, if at the same time the 4H or DAILY charts are showing price to be on or near a major level of support, you might re-consider that short position as it could be a very low-probability trade set up.

More important for you to realize though is that there are many ways to trade S&R. If you have an idea in mind, the best thing to do is go back in time on the charts and test to see how your approach would have done over many many trades and market conditions. If your testing shows that your approach works well on the 5M chart alone, without confirming other time frames, then go with it. What i've described is my own personal experience through live trading and testing. You have to come to your own conclusions about what works or what doesn't. It's the only way you can truly be confident

Hope this helps

[daydreamer65]

Originally Posted by George C

Thanks for your prompt feedback again - but now I'm somewhat confused.

I thought - and correct me if I'm wrong - that the general gist of your original post is that long-term S/Rs take precedence over short-term ones. However, how does that square with your recommendation to account for 5M S/R movements in setting entries, TPs and SLs?

5M price has bounced repeatedly off

If price is having a problem breaking through any level (bouncing off
that level) then that level needs to be respected, whether 5M, 1H, 1D etc.

In fact the more times it visits that level the stronger the level
becomes. When it breaks that level the price could then move up
to the next level quickly or re-visit this time as the opposite area,
ie support becomes resistance & vice versa.

Generally though even though they appear, due to fibo levels,
pivot lines etc, on the 5m chart, they can be very fleeting & classed
as minor S/R lines. In fact on higher TFs not noticeable.

This is all encompassed in price action.

Take a look at this series of patterns they can apply to any TF.

StockCharts.com - ChartSchool - Chart Patterns