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Originally Posted by pmha
Thanks for your reply,
Using support and resistance in that way is definately the best way to trade
ie. in an uptrend buy on a retest of support and in a down trend sell on a retest of resistance, trading this way allows for reasonable stop losses .
Of course this follows the methodology of buy the dips in an uptrend and sell the rallies in a downtrend.
It would be interesting to for you to post your method for finding these areas, as most traders use pivots etc for s/r which personally i find are for amateurs.
pmha
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You bring up a good point which I will discuss my method of doing it.
My hardest problem when first begining trading was that I didnt understand how to frame price. Bollinger bands did not always work. Pivot points and general S/R levels did not work. (Hes right, these are pretty much useless in a sense...)
One thing to remember... NOTHING works always. I stress to you, always take a mental snapshot of the market and see what the market is doing. Range bound? Trending? Is there a reason that its range bound? Is there news?
You MUST ALWAYS look at the market before doing any sort of trading and understand what you should be looking for in that pair from past price. Categorize it the pair and price and if you cannot... I suggest you stay out.
S/R levels, how I find them, and how I use them...
Historic points in price (4 hour, daily, weekly, and monthly)
I will ALWAYS before entering a trade look at the following time frame charts to see where price is at. I have found historic highs and lows are extremely relevant and are taken into consideration by all traders and banks.
Zoom out on these charts... draw support and resistance levels on points of consolidation. The more times a line is tested gives the line more relevance that yes... this is a pertinent point in price which means that it is being considered by the market.
Highs and lows are extremely pertinent especially on the slower charts, daily, weekly, and monthly.
Compare current price to where it is in comparison to these support and resistances. If not near any on the slower charts such as monthly or weekly... head to faster charts and try to find them on 4 hour charts. I would not try to find S/R on charts any faster than a 4 hour chart.
Also, I keep track of fibonacci levels on these charts also.
100 EMA
I have found the 100 day ema to be an extremely relevant barrier. (To give credit, I took this from the bunnygirl crossover strategy). As she has said, I will never trade towards the 100 EMA unless there is space to make enough pips or I truly believe that it will break the 100 day ema.
Try throwing it onto a chart, you will see how price actually does react around the level of the 100 day ema. To me, it is an extremely relevant resistance or support.
EMA Crossover - (5 crossing 20) Also taken from the bunnygirl crossover strategy.
When the 5 EMA heads towards the 20, this is another support or resistance and only three things can occur.
1.) Bounce of the 5 ema off the 20 (usually tends to happen in a trend)
2.) Crossover leading to basically possible gains until the next support or resistance.
3.) It bounces or crosses and consolidates. Basically... the lines merge or move sideways.
I have found this to be extremely relevant.
Bollinger bands and trend channels can also be useful. I would consider a bollinger band or trend channel to be relevant once the price as bounced off the higher and lower lines at least twice. From there you have to consider bounces and breaks.
Trading support and resistance levels is the way to go. If you dont understand... I will start saving pictures of how I draw out my charts and post them. Just ask otherwise I will not. =]