Support and resistance
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  1. #1
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    Default Support and resistance

    I am really wondering whether indicators are really useful in finding out support and resistance.. Because, so far I have learnt, you can draw support and resistance multiple ways.

    1) Moving averages.
    2)Fibonacci retracements
    3)Pivot points
    4)Bollinger bands

    And, each and everyone draws Fibos in their own ways.. So, if you use all of the above indicators to find support and resistance in a single chart, you are going to see multiple lines as support and resistance. I assume that the lines are going to be so close that almost each and every area in the chart is a support and resistance zone.

    So, is there really a point in trying to find out support and resistance this way? If each indicator shows different support and resistance, which indicator has to be given priority?

  2. #2
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    Quote Originally Posted by Shanmugam View Post
    I am really wondering whether indicators are really useful in finding out support and resistance.

    It's never occurred to me that indicators would be useful for this.

    I know of no ways (and have never even seen claims of any) of drawing support and resistance by using moving averages, Fibonacci retracements, pivot points or Bollinger Bands.

    I may have been missing something, all these years, but to me it sounds like nonsense (and entirely unnecessary nonsense, at that).

    Previous support and resistance levels can be identified by the highs and lows of the bars/candles on the chart.

    Sometimes they turn into future approximate support and resistance levels; other times not.

    It seems to me that the two primary factors that affect the chances of their doing so are (i) frequency ("number of touches") and (ii) recency ("how long ago").


    Quote Originally Posted by Shanmugam View Post
    So, is there really a point in trying to find out support and resistance this way?

    I'm always willing and interested to learn something new that can reliably be proven/demonstrated in an objective way (i.e. NOT by anecdotal evidence and cherry-picked examples!), but there's certainly absolutely no point at all that I'm currently aware of.

  3. #3
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    Quote Originally Posted by lexys View Post
    It's never occurred to me that indicators would be useful for this.

    I know of no ways (and have never even seen claims of any) of drawing support and resistance by using moving averages, Fibonacci retracements, pivot points or Bollinger Bands.

    I may have been missing something, all these years, but to me it sounds like nonsense (and entirely unnecessary nonsense, at that).

    Previous support and resistance levels can be identified by the highs and lows of the bars/candles on the chart.

    Sometimes they turn into future approximate support and resistance levels; other times not.

    It seems to me that the two primary factors that affect the chances of their doing so are (i) frequency ("number of touches") and (ii) recency ("how long ago").





    I'm always willing and interested to learn something new that can reliably be proven/demonstrated in an objective way (i.e. NOT by anecdotal evidence and cherry-picked examples!), but there's certainly absolutely no point at all that I'm currently aware of.
    I have read that outside band in bollinger bands are dynamic support and resistance levels... There are many articles that say Fibo levels are possible support and resistance levels to, esp 61.8 and 50 Fibo levels... And when I read about pivot points, S1 and R1, for example, are shown as possible support and resistance levels... But all these tools dont show the same support and resistance levels right? If I want to find out when is the price likely to reverse its direction, which of these tools is more accurate? Do they really work? I believe you understand my question.

  4. #4
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    Quote Originally Posted by Shanmugam View Post
    I have read that outside band in bollinger bands are dynamic support and resistance levels...

    They can overlap with support and resistance, of course.

    Like all indicators with multiple (in fact infinitely variable) settings available, there will by definition be a BB setting which fits every single observed point of support and resistance in the market. In the sense that with a 2-SD band 96% of prices are - by definition - inside the bands, price touching the outer band can easily happen to coincide with a point of support or resistance, of course. I'm not disputing that for a moment. (And I'm not claiming that Bollinger Bands don't "work" - that depends on how one tries to use them. And you need to be aware that when price "regresses" from a band to the midline, it can still do that by moving in the "wrong" direction because the bands themselves move: having touched first an upper band and then the midline, the price can still have moved upwards between the two touches, because the bands themselves might be higher by the time the midline is touched/crossed - they never show you that, in the cherry-picked examples on websites and in PDF's, but when you sit down and trade, it seems to happen all the time!).


    Quote Originally Posted by Shanmugam View Post
    There are many articles that say Fibo levels are possible support and resistance levels to, esp 61.8 and 50 Fibo levels... And when I read about pivot points, S1 and R1, for example, are shown as possible support and resistance levels... But all these tools dont show the same support and resistance levels right?

    Fbonacci and pivot points I can't help you with - sorry. I don't believe in either. I've written quite a lot elsewhere in the forum explaining why not.

    https://www.lhup.edu/~dsimanek/pseudo/fibonacc.htm



    Quote Originally Posted by Shanmugam View Post
    If I want to find out when is the price likely to reverse its direction, which of these tools is more accurate?

    It doesn't matter. Neither of them is accurate or reliable enough to be worth talking about, in my opinion, and I've never seen any more than cherry-picked, anecdotal evidence in support of them (but I've seen some objective, independent, academic studies which strongly demonstrate that they're no more reliable than randomly-drawn lines). But this is less important. What's more important (in my opinion) is that trying to "predict" future S/R by using indicators like this is a terribly misguided approach, which in practice prevents people from learning what they should learn, about price action.


    Quote Originally Posted by Shanmugam View Post
    I believe you understand my question.

    I think I do ... I might have misunderstood it a little the first time (sorry - my fault!): I hadn't fully appreciated that you were asking about trying to use these things as a way of predicting future support and resistance.

    I don't think it changes my answer significantly, though.

    Predicting "turning points" (other than by having easonably good guesses from previous/recent turning points) is terribly difficult and not something indicators can help with, in my opinion (and not something you need to be able to do, to trade profitably, anyway).

    There's certainly a way of using moving averages to detect momentum changes within an existing trend (e.g. by deliberately curve-fitting an MA to the existing trend and seeing when the line's broken/re-tested/whatever). I wouldn't question the validity of that, at all. (I don't actually find it helpful, myself, overall ... but I certainly wouldn't dispute its validity).

    Personal opinion only (and I freely admit that loads of people here disagree with me about it - and as always you'll have to decide for yourself whether or not they're people who are actually trading profitably or making a living from their trading!), but I think time spent looking at anything to do with Fibonacci in relation to trading is time totally wasted: honestly, you'd be better off reading people's horoscopes.

  5. #5
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    That is an interesting opinion.. thank you for your detailed reply.. I am still learning Forex.. The more I learn, the more I realize that there are lot of crappy tools and strategies that dont really work... But I am surprised to hear that Fibonaccis are a waste of time... I have thought so many times, but when I see people in youtube and forex sites talk about fibonacci a lot and how it is useful, I decided to learn it.. In fact, today I am taking the time to read more about fibonacci and find out if they really work.. When I see the examples shown on some tutorial videos in youtube, they are quite convincing... May be one if the reasons why it works sometimes is because it is self fulfilling. (Lot of traders may be eyeing the same levels) I am looking for opinions from other people here in the forum regarding this as well.

  6. #6
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    Quote Originally Posted by Shanmugam View Post
    That is an interesting opinion.. thank you for your detailed reply.. I am still learning Forex.. The more I learn, the more I realize that there are lot of crappy tools and strategies that dont really work... But I am surprised to hear that Fibonaccis are a waste of time... I have thought so many times, but when I see people in youtube and forex sites talk about fibonacci a lot and how it is useful, I decided to learn it.. In fact, today I am taking the time to read more about fibonacci and find out if they really work.. When I see the examples shown on some tutorial videos in youtube, they are quite convincing... May be one if the reasons why it works sometimes is because it is self fulfilling. (Lot of traders may be eyeing the same levels) I am looking for opinions from other people here in the forum regarding this as well.
    I agree with you, a lot of tutorial videos, and training seminars, are very convincing. That's because they are often run by good salesmen, not by good traders otherwise they wouldn't need that income stream

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  7. #7
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    Quote Originally Posted by Shanmugam View Post
    So, is there really a point in trying to find out support and resistance this way? If each indicator shows different support and resistance, which indicator has to be given priority?
    Hello Shanmugam,
    The supports and resistances that are very near each other (for example: fibo level with pivot point or fibo level with support level) are the most significant. Otherwise, the support and resistance of the price I think are the strongest.

  8. #8
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    Quote Originally Posted by Shanmugam View Post
    I am really wondering whether indicators are really useful in finding out support and resistance.. Because, so far I have learnt, you can draw support and resistance multiple ways.

    1) Moving averages.
    2)Fibonacci retracements
    3)Pivot points
    4)Bollinger bands

    And, each and everyone draws Fibos in their own ways.. So, if you use all of the above indicators to find support and resistance in a single chart, you are going to see multiple lines as support and resistance. I assume that the lines are going to be so close that almost each and every area in the chart is a support and resistance zone.

    So, is there really a point in trying to find out support and resistance this way? If each indicator shows different support and resistance, which indicator has to be given priority?
    My main tool to draw S/R levels is using cluster analysis which is available on brokers that offer access to futures or options trading. The logic behind this method is to track the pileup of limit orders at certain levels which can in case they're activated to trigger reversal or breakout. Its not such as easy as advanced traders try to disguise or mislead traders sending limit orders without intention to trade just to make visibility of the "crowd" looking for to sell or to buy at certain levels.

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