I hope that BabyPips are open enough to allow me to post the following. This could be a very interesting topic among traders and I would love to hear what others have to say. Good or Bad. (Wanted to post this not under the beginners section, but do not have a choice at the moment.)
I have recently posted a YouTube video "PROOF that Forex is RANDOM". One of the things I disproof was SUPPORT and RESISTANCE. I then had the following question below and I think this is worth mentioning at BybyPips for discussion.
"This is awfully honest and heartbreaking to watch. But I think a psychological support or resistance do exist. For example, there is a strong consensus that EUR/USD dont exceed 1.16, as 1.16 or above is the price before ECB announce QE, and now ECB announced QE so it is highly unlikely EUR/USD would back to the old price. I think everyone have their own psychological S/R, so S/R does exist, but delicate lines on the chart is not reliable. Please tell me if my logic has flaws"
"I have not been following Market news lately, but my opinion would be that anything is possible. The news events are already reflected in the market by the time it's released. So the ECB QE release was higher than expected which drove the market down even more. So I must believe that the market is now again in 100 % equilibrium based on THAT news. Level 1.16 is so close to the current market price (only 250 pips off). One small change in OIL could easily takeout that level again. The other point which I did not cover in my video is that the market "They" always want to trade the maximum orders OR "they" wants you to fail. So if this is the "Consensus" then it means that a lot of traders will now be in a long term SELL and will thus have their stop loss just above 1.16. The market will SEE this, most likely takeout all the stop loss above 1.16 first and just as everyone is reversing (BUYing again) since a RESISTANCE was broken (and are now support) the market will shoot down and make you lose two times in a row. This is why you will notice that you do not even have a random 50% change in Forex. The market can see all the Orders and Stop losses and they use it against you. This is another reason, why you as a home trader, just don't win on the long run.
So will the market ever break the 1.16 level again. I am 99.9 % sure it will. I just don't know when(could be next week or in a year's time.)"
So I believe Support and Resistance gets used against you and get broken all the time to your disadvantage.
I wonder if this THEORY is true, if it could be used as a trading strategy?
(O. I forgot. I do not believe in Support and Resistance