[Dinerotrader]

Thanks for your perspective. I see chart patterns mentioned around the forum but I don't read my posts where people are using them in their trading strategy. They are probably more rare than is preferred for a day trader style but maybe I am wrong.

[ant]

I look for chart patterns but I don't trade them in a vacuum. I like one of the examples that Thales posted in this thread where there was a gap down open and the gap wasn't filled so he traded S/R levels in the direction of the gap. IMO, that's an example of the way to trade. I think understanding market context is essential for successful trading as I've mentioned in my prior post. The patterns I look for in weekly, daily and 30 min bar charts are mostly double tops/bottoms, trading ranges, and trends. I look at weekly and daily bar charts prior to the open for perspective and to identify the market condition in various timeframes. Intraday, I look for patterns in the Market Profile graphic which is what I actually trade off of. It seems that over time my mind has been conditioned to seeing the markets in terms of trading ranges and trends so that I can adjust my trading accordingly. All other patterns are secondary and not as important to me. I do try to stay aware of other patterns and technical analysis indicators, such as trendlines and S/R levels followed by most traders, to help me determine if shorter term traders are dominating the market, which would usually indicate a low confidence market. Identifying low confidence markets allows me to lower my expectations for a trade versus letting the profits run on a high confidence trending day, for example. Pattern recognition and understanding market context are areas where human beings excel over computers. These are areas that can provide a real edge for the trader in the marketplace. Those two concepts dominate my trading. Any trading system that can be automated I avoid like the plague because I know that I can't compete with others with deeper pockets in this arena. Frankly, that trading style just doesn't suit me anyway even as a software developer.

[klainey]

Hi,
yes I am very new to this. I will have to read these messages again. Not to mention google the net to get my head around some of the terminology used. Any of your suggestions would be appreciated. But please think of me as your 9 year old daughter most of this is way over my head. I am going to check out your other messages. Thanks again. Kerry

[DbPhoenix]

Originally Posted by klainey »

Hi,
yes I am very new to this. I will have to read these messages again. Not to mention google the net to get my head around some of the terminology used. Any of your suggestions would be appreciated. But please think of me as your 9 year old daughter most of this is way over my head. I am going to check out your other messages. Thanks again. Kerry

Terminology can be a challenge, particularly if those who are discussing something are using the same words to describe different things. Perhaps the following will help get you started:

The Nature of Support and Resistance

Support & Resistance and Trading Trend

The Basic Law of Supply and Demand

Auction Markets

As a start.....

Put simply, support is the price at which those who have enough money to make a difference are willing to show their support by retarding, halting, and reversing the decline by buying. Resistance is the price at which those who have enough money to make a difference attempt to retard, halt, and reverse a rise by selling. Whether one calls this money professional or big or smart or institutional or crooked or manipulative or (fill in the blank) is irrelevant. If repeated attempts to sell below this support level are met by buying which is sufficient to turn price back, these little reversals will eventually form a line, or zone. Ditto with resistance.

A swing high or low represents a point at which traders are no longer able to find trades. Whether that point represents important support or resistance will be seen the next time traders push price in that direction. But everyone knows this point, even if they aren't following a chart. It exists independently of the trader and his lines and charts and indicators and displays. It is the point beyond which price could not go. Hence its importance, both to those who want to see price move higher and those who don't.

The first two posts to this thread address these matters, as do others here and there. However, finding S&R in real charts in real time takes more than just a couple of posts. But one must understand the nature of support -- and resistance -- itself before he begins to look for it. Otherwise, he will find what he thinks are S&R in some very peculiar places.

Before coming to any conclusions about what “works” or “doesn’t work”, and thus does or does not provide an edge, one ought to keep in mind that a given event -- such as price seemingly finding support or resistance at a trendline (or moving average, candlestick, Pivot Point, Fib level or whatever) -- may be only incidental to what is truly providing that support or resistance.

A fundamental misunderstanding of how "indicators" are calculated and what they're supposed to do can lead to all sorts of off-task behavior. We think we see the indicators indicating something, or not, and believe we have made an important discovery. We then devote our efforts to improving the hit rate and the probability of whatever it is we think the indicator is indicating when our efforts ought to be focused on determining whether or not the indicator is actually indicating what we think it's indicating. In most if not all cases, it isn't.

Consider the virgin being tossed into the volcano: sometimes it results in a great crop, sometimes it doesn't. Maybe tossing her in earlier or later will change the probability of a healthy crop. Maybe two virgins are better than one. Maybe six. Maybe tall virgins are more effective than short ones. And surely age is important. But does the robustness of the crop really have anything to do with tossing the virgin into the volcano in the first place?

The money under the pillow is not evidence of the existence of the tooth fairy, and spring will arrive regardless of whether the virgin is tossed into the volcano or not.

[Kiwi]

There are some excellent posts in this thread and I'm not really going to add much to it.

I liked a statement made by edabreau in another thread "That is probably one of the most crucial events of all. When I finally knew that I was not trading the price action, but trading my trade setups and rules."

I find that this is an important point. If you think you are trading "price action" or "indicator action" or whatever you are much more inclined to beat yourself up as the market moves in its merry way and you are not profiting because you are not "in." When you truly believe that you trade your tested setups and rules then, like when you truly believe that you can't tell whether this trade will win or lose, your trading will become much easier.