[thalestrader]

It is interesting to compare Zen's and Gabe's trades, both short, both in the same base currency (EUR), but one quickly and decisivly moved to a reasonable support level (profit objective) while the other, while moving down, has done so reluctantly, more drifting than swinging, ultimatley causing the trader to abandon the trade for a small loss.

Originally Posted by ZenMachine »

Just entered short EURUSD.

Entry @ 1.4390
Stop Loss @ 1.4431
Target 1 @ 1.4334
Target 2 @ 1.4278

Originally Posted by ZenMachine »

It broke down the level which I thought was a good resistance line, but would not go down.... It didn't move as expected and I exited at 1.4400.

Originally Posted by Gabe2004 »

My initial target was the middle purple line but I chickened out and thus left about 100 pips on the table
The second chart shows the peaks and troughs that generated the purple lines.

Zen traded the EURUSD. I am not sure, Zen, how you identified what you thought to be a "good resistance line," but as you determined on your own oncein the trade, you had thought that line or price level was more important than the market did, as price acted as though crossing that line was a non-event.

Gabe traded the EURJPY. EURJPY had a clear breakdown point from which one could expect that price would at least decline to test the first prior resistance level as support. Of course, price doesn't have to do anything of the sort. One may anticipate that price will so decline and reach that target, but it is free to reverse at anytime, and it is precisely that possibility for which the stop loss was created.

I have found it useful, in trading support and resistance, not only to recognize where price is, but also how price got there.

That is, the trader will help his or her cause if the trader learns both to recognize support and resistance (while distinguishing those important levels from the vast middle of nowhere), but also studies how price is moving as it makes its way through the space between these levels.

Is price moving in clear and distinct swings or is it simply meandering, drifting seemingly without purpose? Is price marching with purpose, spending little time at any particular price before mounting its assaults on subsequent levels, or is it coiling around itself, overlapping again and again, making no headway one way or the other?

I have attached a chart of each pair. In each case I have used heavy purple lines to trace out what I consider to be important swings. Thick blue lines represent entry points, thick red lines represent stop loss levels.

As you can see, the EURJPY has traced very clear, distinct swings, offering what I consider to be two very good entry points, one long, and one short (the short is similar, I presume, to Gabe's entry).

The EURUSD also shows what I consider two good entry points, both long. Price may indeed decline from current levels, possibly significantly. But as yet, I do not see what I would consider a safe entry for a short.

I have traced out price action on the EURUSD since yesterday's high with a thinner purple line, and added a "?" label to the end of that line which is at the current price. That is because I do not yet consider the price action subsequent to that high as a complete swing. In fact, it barely qualifies as a separate swing from the swing that carried price into its high. Certainly there are many overlapping swings visible within this downward drifting sideways movement, but none of these, individually, constitute the creation of a tradable point (S/R) in price action.

Why call S/R a "tradable point"? Because S/R represent a price level at which the market has made a decision in the past to change direction. Upon revisiting that level, a tradable moment occurs as price will decide either to reverse again at that level, or break that level and continue to the next recent S/R level.

Watching the manner in which price is moving will help you to distinguish support and resistance froom a mere course adjustment out in the middle of nowhere, as can be seen from these two trades.

Best Wishes,

Thales

[Gabe2004]

Selecting the peaks off of which to trade is a tough one for me too.
I think I solved the problem by looking at much higher time frames than I would trade off. THe peaks and troughs in the higher time frames are less ambiguous but still which one to choose is a challange.
For that reason I am looking at a way to define the relevance of the peaks/troughs by wheir distance from eachother and whether there is a clear LINE OF SIGHT between the current price point and the peak/trough that I am considering.
By line of site I mean - if I draw a trend line from the current price point to the peak/trough that I am considering to trade off , there should be a maximum of 1 leg of a swing being cut by my trend line.
If my trend line cuts more than one leg it could be a lesser probability entry point.

[Gabe2004]

Nice fit of the price to previous peaks and troughs.
The second chart is identical to the first one except that it is a BAR chart instead of a CANDLE chart.

[ZenMachine]

Originally Posted by thalestrader »

Zen traded the EURUSD. I am not sure, Zen, how you identified what you thought to be a "good resistance line," but as you determined on your own oncein the trade, you had thought that line or price level was more important than the market did, as price acted as though crossing that line was a non-event.

Thank you Thales.

Yes, looking back, I was puzzled myself why I ended up with the idea that it was a good support (I meant to say "good support" not "resistance" in my previous post. Sorry for further confusion).

I was picking entry points based on boxes drawn around consolidation areas, and if the price goes outside of it, it's my signal. (see attached chart. Blue rectangles are what I considered consolidation, and blue arrows point to possible entries)

In doing so, I was losing sight of larger swings and this caused me to pick the "middle of nowhere" as S/R mistakenly.

(I am not trying to justify my thought, but this is just an observation of what I was doing)

[forrestang]

Don't know what's going to happen, so I'm just messing around

Green is initial targets, reds are entries and stops. I'll trail if I get a fill and try to update thread.

[thalestrader]

Originally Posted by forrestang »

Don't know what's going to happen, so I'm just messing around

Hi Forrest,

How has the NQ trading been going for you? You had looked to be doing some excellent work before the summer hiatus.

I'm one of those old fashioned guys who tends to still think the cash is important (which may explain why I still believe in the existence of gaps).

Looking at the cash SP, I would anticipate that price should have difficulty breaking and holding above 1018. I was expecting this 1018 to print on Friday, but price fell short by a little less than 2 points. Had 1018 printed, then I would have anticipated a gap opening tomorrow below Friday's close tomorrow. I still expect that cash will open below friday's close, but not with the same confidence I'd have had 1018 printed Friday. If it does gap open lower, I would not be surprised if that gap is substantial. This is based simply on the breakdown below 1018 ... decline to 992 ... rally back to test 1018, i.e. trend is now down until until it is up, and I anticipate accordingly. Should trend confirm itself to have turned back up, then use S&R too trade accordingly.

I see 992.50 is significant support. Should price get there, I would anticipate that support to fail to contain price, and SP500 should decline to test the June 956 high. Beyond that, we shall see.

For what it is worth, I am short at 1018 (current 1019.50) and targeting 60 points. Of course, the market could not care any less about me, and it may be heading for 1060 rather than 960.

We will know more by this time tomorrow.

Best Wishes,

Thales

[Gabe2004]

Originally Posted by forrestang »

Don't know what's going to happen, so I'm just messing around

Green is initial targets, reds are entries and stops. I'll trail if I get a fill and try to update thread.

It may be clearer if youcould mark the entry color different than the stops.

Thanks

Gabe

[thalestrader]

Originally Posted by Gabe2004 »

It may be clearer if youcould mark the entry color different than the stops.

Thanks

Gabe

I think he is bracketing a range, and therefore, if price triggers long, i.e. breaks out above the top of the range, then his short entry becomes his stop loss; and if price triggers his short entry, i.e. if price breaks down below the bottom of the range, then his long entry becomes his stop. Therefore, it makes sense that he uses one color to denote his possible entry points.

Best Wishes,

Thales