My Theory on Support/Resistance Levels and Trendlines

Now this may be controversial topic depending on how you feel about this, but if you disagree, I say back test first and then see if taking this view of support/resistance levels and trendlines helps you avoid more traps in the market than not.

Any touch after the 3rd touch is very likely to break in my opinion. For me 2 points make a level or trendline and it’s only usable for 1 more touch (3rd touch). After the 3rd touch they teach that the level or trendline is confirmed, which usually induces traders into a trap as the “confirmed” level or trendline is broken.

For support/resistance we know price will wick (3rd touch) slightly past equal highs/lows (1st and 2nd touch) without closing (take liquidity without violating the zone). That action depletes the orders that prop up the zone so the 4th touch is a trap door. It still looks solid but there’s nothing beneath it to hold up the level.

With trendlines, we know that price generally moves in 3 drives before a correction, which if the origin of the drives are plotted with a trendline would only bounce price 3 time before the correction breaks the trendline on the 4th encounter.

This happens more often than not if trendlines and S/R levels are drawn correctly based on my observations. Thus I prefer to trade the break of counter trend lines which may signal that the impulsive wave has resumed as opposed to trading the traditional trend line.

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