Ok so lately i`ve been demo-ing a lot,while the my overall gains were positive the average was really lowered with some issues with fakeouts.I guess the problem was that I did not draw the S/R or trend lines correctly,so I have the following questions:
1)Do you guys/girls draw S/R lines on the closing prices or on the highs/lows,i know people do one and some who do the other,but since by using the power of self fulfillment i`m curious which one is done by more people?
2)When it comes to a consolidation pattern,lets say a descending triangle,which one can hold the most weight the diagonal trend line or the support zone in general? I know that it is an undecided pattern but i`m curious what results did you get (bullish or bearish breakout,maybe further consolidation)when encountering this pattern?
S/R lines need to be thought of as zones rather than exact lines. I typically consider a S/R zone to be about 10 pips from any line. So if my S line is at 100.50 then I assume that price can hit support from 100.40 through 100.60. You can assume it’s larger on higher time frame charts and gets narrower as you go down. I use the 20 pip rule of thumb on 4h/dailies.
For some reason I noticed that a lot of instructional material doesn’t push the S/R levels are ZONES and not just lines. But to answer your question, it’s drawn off of the tip of the wick- people suggesting that you do it off the body of the candlestick are doing it right. S/R is determined by where price has touched and failed to make gains from or has pushed away from. You’ll want to put your line where a majority of the wicks (or body if there was a retracement) touch.
With a consolidation pattern you would probably want to err on the side of the overall trend in the next higher time frame. That is likely the direction it is going to try to go. In the event that you’re in an overall ranging market; wait and see is the name of the game.
When you trade break outs, you want to wait to see if it’s an actual break out or is going to pull back. I use a very simple method. If price punches through a level I want to see a candlestick CLOSE at least 50 pips through the level (I trade daily charts so I deal in bigger pip numbers). If the price does not close at least 50 pips through, I assume it doesn’t have as much force that a breakout would normally have thus is more likely to double back within a stick or two. I also do not want to see a lot of wick on the candlestick in the direction it is moving. So if it’s breaking to the downside, I don’t want to see much wick on the bottom of the candlestick because that tells you that the move is facing strong opposition.
Don’t bother trying to trade breakouts before they actually happen. And don’t place orders at say 50 pips away. It can easily go through, hit your trade, and double back to your stop which you will put right behind the S/R level that was pierced.
Well a steep ranging market can be a perfectly ascending or descending trend in a lower timeframe reversing itself at some point.But lets say on a ranging market on a 1 hour chart probably the horizontal S/R zone is stronger,while on a 15 min chart the trend can be seen and punching through local support/resistance levels and maybe consolidation zones,but seen this from a 1 day chart that big ranging event on that specific hour may be no more than a rectangle pattern which was easily broken and was only a mere 1 hour consolidadion of another bigger trend, so you’re right…wait to see :rolleyes:
A correction in my original post- in the second paragraph it should be “people suggesting that you do it off the body candlestick are doing it WRONG” not right.
In regards to your recent post- a point of advice I’ve seen surrounding that is to draw your S/R lines on the next highest time frame from what you trade. That way you can see where the lines and if they coincide with the lower time frame. So if you have a line drawn in on a one hour and you can see that it’s acting as a Resistance on the 15m as well; you know it’s a level with some meat to it.
It also depends on how you trade. Some people would want to trade that smaller trend but I have yet to see any advice given that suggests one should trade into a S/R level. It’s always trade when you have confirmation of a break out or a solid rejection.
The key thing to remember is that a candlestick is not considered valid until it is closed. If you see a lot of passes through a S/R level then it’s probably not that strong to begin with which means there probably isn’t going to be enough volatility to create the big profit target that breakouts normally provide traders. If it’s a strong level, price will hover regardless of the time frame.
I do it similar to you, stonecoldmichael. When price reaches a S/R zone, I wait and look how it behaves and where the candles on different TFs close. If price shows weaknesses, I go in.
Do you also use pivot points or hand drawn S/R ?
I try to filter out fakeouts with ichimoku ;the kumo cloud is a great tool,since in many cases the price action enters the cloud and stays there before a breakout,and usually the cloud is a bit past the key S/R level,this means that when/if the price action breaks out the cloud that will be now a real breakout instead a fake one;and entering after the kumo breakout and putting a SL level below the cloud and the S/R zone can be really nice.What do you think?
Hi, for breakout trades, there are 2 common ways to trade it (I said 2 common, because there are other way to trade it)
The first is trade when the breakout happen and this is aggressive way to trade compare to the second way, you will place limit order just above the breakout level (This can be single resistance or area), I don’t know how you draw the S/R lines but I assume you draw single line S/R.
There is nothing wrong with your S/R drawing, but you might want to see support or resistance as area where big traders or institutional trader placed their order and all of the order like a stack and they might add / reduce the order depend on market sentiment.
I don’t encourage the first way to trade, because this style of trading mostly will end in fakeouts
Now let’s see the second way to trade where we will wait for actual breakout happen, waiting for pullback and place the order. Chart talk more than explanation, please look at chart posted below.
Look at the chart above (Formation is not triangle but we get higher low), it is EUR/GBP 4 hours chart,
we can see break out from the resistance and price pulling back to the resistance that already turned into support and price resume the upward move. We want to place trade when price in pullback time and enjoy high odds trade rather than the first style. Of course there is possibility that the setup will fail too, so remember to place your stop loss order in case the trade fail.
