S/R level strength relative to each other (appearing on same timeframe)

Beginner Questions
1

(Sorry moderators, please remove the copy of this thread from the Price Action subsection, I have just noticed there is more activity here and I may get a faster response).

Hi everyone,

This is my first post on any trading forum. I am trying to get more comfortable with basic price action concepts that I can use for trading currencies that are in trend.

Please forgive me if this question has been discussed before (I am sure it has been in one form or another) but if the price has managed to break a S/R zone (for now lets not discuss what if it is a false break etc just to keep it simple) can the trader expect that the next S/R level that doesn’t look as strong as the broken one will also break?

To be more specific, for example I am trading a three time frame simple trend following system of my own and I usually use the smallest of these timeframes (5 min) for entries. My entry will be on a break of a certain S/R level on the smallest timeframe I use, my SL will be the next S/R above/below the entry level (where my trading idea is invalidated, at least on the same TF I use for entries). Now I need to know where to take profit. If the next couple of R/S levels on the 5 min chart look not as strong as the one I used for entry (i.e. the level has been tested less times) would it be logical to take profit (or at least close more than half of my position) at the first stronger S/R level? Usually this stronger R/S level would also appear on a higher TF chart (1 hr). Am I at least on the right course?

And finally another shorter question - is a swing high/low considered to be a stronger S/R level than a S/R level that is NOT a swing high/low (i.e. it appears only as an horizontal area repeatedly tested by price)?
I understand that on a smaller TF the swing high/low would also appear as a level that has been tested multiple times by price. But lets go back to the higher TF (5 min) where I make my entries). Does the fact that price has been rejected in a more aggressive manner (i.e. bounces off and quickly goes back up/down) make this level stronger than the other S/R levels.

Thanks in advance for your answers.

2

The way I trade, I always assume the next S/R level will hold, and take profit before then. That means my R:R ratios is close to 1:1, give or take. How you decide to close the trade or not will depend on your strategy or system. There’s no easy answer.

But since I’m aiming for a 1:1 R:R ratio, I’m basically testing to see if my trade has a 50+% chance of being in my favour. It’s pretty “easy” to bump your win-rate from 50% to perhaps 53% by trading with the trend, only holding positions with positive overnight swap, only trading the majors to minimise spread or transaction costs, identifying profitable candlestick patterns etc etc etc. Small edges are everywhere.

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I’ve done quite a lot of work into ‘apparent’ support and resistance levels, I say ‘apparent’ because it’s a complex and wild area of analysis. I personally think that this [B][I]is where the money is made[/I][/B] within FX trading - however identifying support and resistance levels is also open to many degrees of freedom [this means that it’s unlikely 10 different traders will all have the same support and resistance levels marked out].

To understand this from a top down approach all we have to do is imagine the number of S&R permutations which occur from different time frames for the same currency pair (or asset class).

When I’m trading from an S/R level I am looking at a minimum of 1:3 risk to reward, this is to make up for the trades where I have taken a hit by S&R levels not holding. One area of analysis which I am working on though, and the results are incredible, is only focusing on S&R levels which are formed as part of UK or US Market open time (these tend to represent turning points in price where there is real volume backing up the strength of the S/R level).

In my humble view, support and resistance is one heck of a headache - even though it’s a simple concept by nature.