For a practical example, I've attached a chart which may help illustrate this S/R

business.
There are dozens of swing points in this chart, thousands with a shorter bar interval,
but these are enough for the illustration.
Note at 1 that price reverses. You don't know why. Doesn't matter. But it reverses,
making a swing point. It's not support. Not yet. Just a reversal due to changes in the
balance between buying pressure and selling pressure. At 2, however, this level now
becomes support. Ditto for 3 and 4 re resistance.
When this R is penetrated, a new swing point is created at 5, though it's not yet R; it's
just a swing point. At 6, that old R level is tested and now becomes S. When price balks
at 7, that level now becomes R.

There are maxims that we come to believe as though they were principles, or even
laws, though they barely qualify as guidelines.
For example,
S once breached becomes R, and vice-versa.
Buy S, sell R.
The more a given level is tested, the stronger it is.
Big volume on breakouts or breakdowns is good (assuming you're on the correct side of
the trade).
And so on.
However, in order to determine whether or not any of this is true, one has to go back
to the point where these old reliables gained currency.
That could take a great deal of time, however, and probably wouldn't be of much
interest, much less practical use.
So for now, perhaps we could settle on the concept that S and R represent those levels
at which one can expect to find profitable trades. Unfortunately, it's next to impossible

to determine in real time whether those profits are to be found on the short side or the
long side. The idea that S, for example, becomes stronger the more it's tested does not
bear close scrutiny. In fact, if S has been tested twice and price returns there yet
again, sellers assume that there's a reason and they prepare to short that return. Some
have created yet another maxim -- Third Time's The Charm -- but this doesn't stand up
under close scrutiny either. As with everything else, it just depends.
So what does one do at these so-called S/R levels? As Mark Douglas counsels, "be
available". Don't assume one side of the trade or the other, but be prepared to take
either.

You've done a nice job of locating most of the potential and realized levels and zones
of S/R, but you're asking the wrong question.
If you trade the long side, you're going to want to enter at or near a point at which the
downtrend turns and becomes an uptrend. In order to do that, you're going to have to
determine what constitutes a trend, what constitutes an uptrend and a downtrend,
how to determine trend strength, how to determine trend change, how to determine
trend reversal.
Once you've done all that (which is much simpler than it sounds if you can draw a
straight line), then you have to determine what your risk tolerance is, and many people
can't do that, unfortunately, until they've begun trading with real money.
But, assuming that you're aggressive, you'd want to enter at the first indication of trend
reversal. You would not wait for confirmation. As for stop placement, it helps to have a
very clear distinction in mind between aggressiveness and recklessness.
On the other hand, if you're more conservative, then you'll want to wait for some sort
of confirmation, such as a higher low.
Once you've decided all that, then you go over your charts and you find those "setups"
which meet your criteria and determine whether or not price actually does move in the
desired direction. If it does more often than not, then you may be on the track of a
reliable setup. If it doesn't, then it's back to the drawing board.
Asking someone where he'd enter makes sense only if you share his goals, his
objectives, his timeframe, his risk tolerance, his price targets, his stops, and so on.
Granted that if you received many replies, you might be able to get a sense of the
gestalt of S/R, trend, demand/supply and so on and proceed from there, but it's highly
unlikely that you would get enough replies to your question to do so. Instead, you
might get at most one or two, and instead of conducting your own investigation, you'd
test somebody else's assertions, which is pretty much the same thing as trading
somebody else's strategy.
Therefore, go back to your chart and find those levels or zones which look to you to be
the most propitious levels or zones to enter, then figure out how you would do so in
real time. Then you can begin developing some criteria for yourself.

Quote:

Originally Posted by DDI

I look at daily and weekly charts and go with the trend, but in fx and futures where my trades
can last from 30 mins to a few days, that's where i have a problem. For example, sometimes if
the 15 min chart shows reversal, to go with daily chart trend, I find that the 60 min (or 240
min) are contradicting.
Anyway the problem I have is not restricted to indicators alone (subject of thread) but
technical analysis as a whole.
Whether one TF "contradicts" another or not has less to do with price action and more
with the choices one makes in displaying it. Consider that there are no contradictions
among TFs, that price simply moves from one area to another. If you trade, for
example, support and resistance, then questions of "trend" become largely irrelevant.
If you attempt to trade trend without regard to support and resistance, then focus on
your chosen interval and ignore everything else.

S/R are not points where demand overwhelms supply or vice-versa. They are rather
points or levels or zones at which the movement of price might be affected due to the
fact that price was affected there earlier by demand overwhelming supply or viceversa. In other words, a swing high occurs because supply overwhelms demand, at least
for the time being, but one cannot assume that a swing high is going to act as
resistance simply because it's a swing high. It must also act as resistance in order to be
resistance. If it doesn't, then it isn't. Again, this is not to say that highs, lows, round
numbers are not potential S/R. But they are not actual S/R until they
actually provide S or R.

There can't be a buy without a sell. What moves price is not buyers but demand. If
buyers aren't willing to pay what sellers want, then sellers have to drop their price.
Otherwise, no trade takes place.

S/R are found where important buying/selling have taken place, important enough to
have turned price. Therefore, the first place to look for S/R are those price points
and/or price levels. Anything else is a representation, and that representation may
have nothing to do with the reality.

Quote:

Originally Posted by bracke

What is considered 'important buying and selling' and how do I find them. Are you able to give
me examples please.
Important support and resistance levels can be found at those levels or zones in which
a relatively large number of trades took place. These trades need not have occurred on
only one occasion. In a base, for example, when "big money" is accumulating shares,
these trades take place over an extended period of time over a narrow range of prices.
Therefore, all told, many trades have taken place even though volume has been low.

Many trades can also occur in a broader range over a period of time which may be
shorter or longer than an accumulative base. For example, if a given level is hit
repeatedly and price is "supported" there by professional buying, that level becomes
strong support, even though the number of shares traded during any one occurrence
are not impressive.
Ditto all of this for resistance. There will be a level at which shares or contracts or
whatever are repeatedly sold, though the reasons for the sales may be difficult if not
impossible to determine. These sales can take place in a "zone of distribution" (see the
Demand pdf posted at the beginning of the thread). Or they can take place over time
when a particular level is repeatedly tested.
Support and resistance, then, can be found in a swing point or the top or bottom of a
reaction, but it is highly unlikely that the support or resistance found there will be
important as it doesn't represent enough previous trades. In other words, there just
aren't enough traders who care about it to make it important.
For the same reason, whatever support and resistance seem to be found with indicators
or trendlines are most likely coincidental since these other lines don't represent
previous trading activity. In fact, they're constantly moving.
The term "law of reciprocity" or "principle of reciprocity" is sometimes applied to the
tendency of support to become resistance when it's penetrated, or vice-versa.
However, "law" and "principle" are a bit high-toned to apply to this concept. There is
nothing absolute about S/R. In fact, S/R can be quite soft. For example, if a given level
is tested repeatedly as support, those holders who bought there may eventually begin
to become concerned over these tests and over the fact that whatever they bought
isn't going anywhere. Some of them may decide to sell some of all of whatever they
bought if and when another test occurs. In this way, support fails.
Even "failure", however, may not be as important as first thought. S/R isn't, and need
not be, rigid. In fact, it is quite flexible. A level or line can be penetrated to what
seems to be an intolerable degree, but if price rebounds to that level or line and finds
S/R there yet again, then that level or line can become even "stronger" (more
impotant) than it was before, which is why it's better to think in terms of S/R "zones"
than of specific prices.
S/R may, in fact, be too soft for some traders to fool with. However, if one understands
that correctly-drawn S/R lines represent levels or zones in which a large number of
trades took place, and that one can expect important action to take place at important
S/R, he can then avoid wasting his time on relatively trivial trades and prepare himself
to take advantage of more potentially profitable opportunities.

By the way, don't get your head stuck in the trees. Important S/R can be found at the
PDH, PDC and PDL, particularly if you open within the PD range. So back off and look at
the forest: days, weeks, even months (note that the NDX has been finding S at a line
stretching back to last December).
There's no one-size-fits-all answer. S/R are where traders expect to find trades, i.e.,
activity, so the PDH and PDL are the first places to look if price opens within the PDR.
However, there might be something special about the day, such as that price spent the
entire afternoon the prv day in a tight range. In that case, the entire range becomes

potential S or R (Wednesday, for example, the NQ spent three hours between 1346 and
1355; Thursday afternoon, it found S at 1346). Or the PDL or PDH may align with S/R
that go back further than the PD.
So, aside from the PDH and PDL, where is price repeatedly being turned back?
Remember this isn't about lines and points and mechanical definitions; it's about
traders and the trades they've made. If breaking S, for example, means that a lot of
traders are going to be underwater, it's probably going to be important. If not, probably
not. How important is ten-year-old S?

Swing points provide a form of support and resistance, yes, but it's somewhat different from
the support and resistance provided by zones. The "resistance" provided by points,
particularly if they are isolated, is provided primarily by the inability of the trader to find a trade
(which, after all, is the business of the trader). There's nothing going on up there, or down
there, so price returns back to an area where these trades can be found, which is where the
"value area" comes from.
In a V formation, price never stays anywhere long enough to provide these zones, and one is
equally likely to find a trade at point A as point B or C or any other point. Since the ES has
reached that top zone twice now, the resistance it provides is a bit more formidable than a
single point. But whether we make a trip all the way down to the bottom is anybody's guess. If
you'll look closely at this particular chart, what appears to be a V has some of those value
areas or consolidations within it. 2004 was spent going more or less sideways, then the first
half of 2005, then the second half of that year, then a little more than half of 2006. Each of
these represents a potential waystation. We're at the first of them now.
I think I used the term "potential climax". What appears to be a potential climax and turns out
not to be THE climax is considered "preliminary support". W didn't know at the time whether
the selling clmaxes were in fact selling climaxes until they were tested. Rather he went with
what was in front of him and stayed open.
But an omnibus answer to your questions may be that the best trades are found at the
extremes. Therefore, you wait for the extremes. I read somewhere recently -- and can't
remember where -- having to do with MP, I believe, that most experienced traders will avoid
trying to catch the tops and bottoms and focus on "the middle", waiting for confirmations to
enter and confirmations to exit. This is likely what they were taught to do. However, since "the
middle" is by definition where most of the trading is going on and is largely non-directional,
there is also a lot of whipsawing in the middle, and that generates a lot of losing trades. One
can sometimes avoid this by widening the stops, but, since the market always teaches us to
do what will lose the most money, this will turn out to be an unproductive tactic.
W used a combination of events to tell him when a wave was reaching its natural crest or
trough: the selling/buying climaxes, the tests, higher lows/lower highs, and so on, all
confirmed by what the volume was doing and by the effect the volume had on price (effort and
result). What auction market theoryprovides is the WHERE these events are taking place,
providing an important clue as to whether they are culminating or merely preliminary. Since W
was big on extremes (climaxes), support and resistance, stride, momentum, midpoints, etc., I
do not view any of this as being off-topic at all. If anything, it's just a natural extension
(perhaps nic can chime in here with his opinion).

Yes, there need to be criteria for exits. But the nearly universal problem that beginning traders
have with regard to exits is a desire to trade all in then all out. Add to that the fact that they
are nearly always trading with one contract or one lot, and you have a doomed setup.
The solution to exits is a simple one: trade as if you were trading five contracts or five lots and
abandon the idea of being able to exit with all of them at the exact top or bottom. The goal is
to make money, not to prove to oneself what a superior trader one is.
Then determine in advance where each of those contracts will be sold. For example, if one is
trading support and resistance, sell the first contract at one or the other. Sell the second
contract, for example, at the lower high or the break of the trendline, whichever comes first.
Sell the third at whatever you didn't sell at for the second. Sell the fourth, for example, at a
breach of the last swing low. Leave the fifth, for example, at breakeven.
Then sell the first contract at whatever point you predetermined and paper trade the other
four. Do this for several months. When it becomes second nature, carry the second contract
for real. Sell the first and second contracts at your predetermined points. Paper trade the
remaining three.
And so on.

W says:
"It is bad practice to buy a stock simply because it has penetrated an established supply line
or broken out of an extended congestion area; or to sell it merely because it has violated a
line of support or broken through the bottom of a trading zone, and for no other reason. Do
not forget: The breaking of a trend line, by itself, is neither a conclusive nor an all-inclusive
symptom. The significant thing is HOW the line is broken; the conditions under which the
change of stride occurs. The behavior preceding such an indication must also be taken fully
into account.
In short, the quality of the buying or the selling at and around the point of penetration
determines whether the violation of an established stride may be regarded as evidence of a
further movement in the direction of the breakthrough, or whether it means only temporary
change. This admonition applies equally to the violation of former tops and bottoms and old
levels of resistance and support."

Quote:

Originally Posted by BlowFish

Well well, DB posting charts with a left hand/outside lines on (channel

line). What is the world coming to
Seriously I had been under the
impression that you did not pay much attention to left hand lines. Is this
something you have changed in your trading or is it more likely
something I have mis remembered?
I don't. I'm more interested in the (potential) support and resistance that are provided by the
market -- such as a swing point -- than I am the imaginary support and resistance that are
provided by a line that I manufacture.
But Wyckoff used these lines to help him track demand and supply, momentum, and stride,
and all of that is perfectly legitimate. The trap lies in persuading oneself that the lines one has
drawn begin to provide support and resistance themselves, which is (a) illogical and (b) not
the point of drawing the lines in the first place.

Regarding resistance, there are several ways of looking at it. One can, for example, plot a
volume distribution (the hinge is circled):

Drawing a line below the bottom of the middle distribution gives one a zone on which to focus,
particularly when price opens below this zone (price also opened below this zone the previous
day, leading to another profitable trade):

Or one can draw a box around the congestion:

Or one can use plain ol' S/R lines, noting the test of the previous day's high:

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 doesnt 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. (Db)
If price bounces decisively off support, then support is most likely good. OTOH, if price tests
support repeatedly, the odds of it failing is increased. The resolve of buyers may not be
unassailable. As for the TICKQ, is there a divergence during these tests?
A classic decline on a retest is a concurrent decline in volume and price with a concurrent
renewal of strength in both if and when price resumes its progress.
Compare the lengths and durations of the buying waves with the selling waves, i.e., do the
buying waves last longer and go farther? Or are they getting shorter and briefer? Or are the
selling waves beginning to last longer and go farther? As for the volume, it can be helpful but
it isn't necessarily relevant until you arrive at a point or level where you're testing support or
resistance. Price can move quite a distance on very little volume if there's nothing to stand in
its way.
To illustrate:

Note that price rejected 1920 at the end of the day on Friday after having spent so much time
there midday. Price rejected 1920 again this morning. You don't know why. Doesn't matter.

Now at 3, price tests what might be resistance (1), but it subsequently makes a higher low (4).
It tests what might be R again, and it looks as though it doesn't want to go higher. But it

makes another higher low (6). It then spends quite a lot of time struggling to move higher, but
again makes a higher low (7). This might be called "absorption", i.e., eating away at supply.
Price then finally makes a clean break upward at 8, but then moves sideways, digesting the
move before moving ahead again at 10.
Among the lessons here is that what price does NOT do (i.e., make a lower low) is as
important if not more so than what it DOES do and provides just as much information to the
trader who's paying attention and is as free of bias as possible.

re: Trading Ranges

Hindsight's a bitch. But what I probably would have done in real time is shown below.
The first box is pretty straight-forward. I would then have drawn the second, then the third,
then perhaps joined them, though joining wouldn't have been necessary.
As for the second set of boxes, if one doesn't have "volume", which you don't, he must be
careful not to trivialize time. The amount of time spent at a given price or in a given range can
be as important as the "show-off" volume which attracts so much attention with regard to the
quantity of shares, contracts, etc, traded. In other words, if price spends a great deal of time
within a given range, that activity can be more important than that which accompanies the
short-lived spikes. The swing highs and lows, particularly in spikes, can be important,
particularly since they draw so much attention to themselves. But they do not necessarily
imply a great many trades, and perhaps not nearly as many as have been made during those
long and boring and seemingly pointless sideways movements. Therefore, I would focus on
the more "filled" ranges (that's not advice; I'm just telling you what I'd do). Note also that the
midpoint of box 7 corresponds to the low of box 5 and the high of box 6.

Quote:

Originally Posted by cowseathay

You can see that with each potential selling climax price drops sharply
with a dramatic increase in volume. The final climax that occurred didn't
seem to have any big volume bar, but a lot of volume occurred in a small
period of time, which you may not pick up if you were following bar by
bar. Also, note that the final climaxes and shakeout occurred at support
(or right below), which signals a much higher chance of a reversal than if
they occurred in the middle of nowhere. You can also see lower volume
on the test, and then large volume during the shakeout followed by rapid
price reversal. The job of a shakeout is to get rid of "weak hands" so that
a new move could be started. And as you can see that job was
accomplished with great success.
Your mention of the "final" climax and shakeout taking place at support should not be
overlooked by those who read this. Many novices search for selling climaxes at every swing
point that has higher than normal volume. But it is not unusual to find swing points with higher
than normal volume. That's in large part what makes them swing points in the first place. So
how does one differentiate between "climactic volume" and a selling climax? Because the
selling climax will take place at or near an important support level.
One must understand that just as distribution takes place on the way up and not just at the
top, accumulation takes place on the way down and not just at the bottom (this is why price
will sometimes spend very little time at the bottom before reversing and taking off in the
opposite direction).
The "climactic volume" that occurs when buyers attempt to provide "preliminary support"
signals an effort toward accumulation. Weak holders will throw their shares/contracts back on
the market when price continues to fall, but stronger hands will continue to slow and
eventually halt the decline. This is what creates the bottom in the first place.
Price does not just stop as if it were hitting the sidewalk after being dropped from a highrise.
Its fall is gradually slowed, as if brakes were being applied, until it comes to rest. The
accumulation which made possible the rise from 1400 to 1440 did not occur just in those few
minutes after the shakeout. It began long before, from the first time buyers tried to halt the
decline.
There are those who claim that volume is useless, and if one doesn't understand what it is,
then it is indeed useless to that individual. But if one understands that volume is a measure of
trading activity, it becomes an invaluable aid at key points and levels, providing that extra
added insight into trader behavior which can make the difference between a successful trade
and a failed one.

The process is practically unvarying, and unfolds according to principles that manifest
themselves again and again.
For example, using the chart I posted earlier (which no one has done anything with),
the first task is to locate potential S/R. In this case, "2" is potential S from the previous
year (this is obviously a daily chart, but the principles apply regardless). Therefore,

when price pauses at "1", one is alert to a potential reversal in advance of the test and
draws a line there.
Price "rallies" slightly, but falls through that line in order to continue with the test. The
trader notes the trading activity accompanying "1". When S is tested at "2", he notes
that, although there is a "lower low", the trading activity is considerably less,
suggesting that selling is exhausted. An aggressive trader buys here with a stop below
the swing point. A less-aggressive trader waits for a retracement of some kind. This
occurs just before price reaches the line drawn at "1". There may be a failure here or
there may be a continuation. "Volume" doesn't provide any compelling clues one way or
the other. So he looks for whatever signs of reversal he's found through his testing or he
waits for a continuation, if any. Price stalls here for quite some time, so he draws a
second potential R line at "3", just in case price runs into further R there.
Eventually, price breaks thru both these levels. Maybe the trader buys this BO or maybe
he doesn't. His choice. Maybe he waits for a retracement, which occurs shortly
thereafter when price returns to R become S at the line drawn at "3". He then draws
the next potential R line at the most recent swing high.
Trading activity, or "volume", is relatively quiet throughout, demonstrating yet again
that powerful volume is not required for substantial moves. All that is required for
substantial upside is a lack of selling interest, clearly evident here due to the fact that
price can rise without much effort.
These are the same principles I've stated again and again with multiple examples.
There are only a handful, and they quickly become repetitive. There's no mystery.
Nothing labyrinthine. One only has to trade what he sees without bias as to what he
thinks or "believes" should be or ought to be or has to be.

Price breaks through that swing high from the retracement to "3", retraces a bit, but
doesn't even make it all the way back to the line, suggesting a preponderance of buying
pressure over selling pressure. "Volume", again, is not enormously compelling one way
or the other. One has to focus on price. Since there's no important S/R here, there's no
reason to expect a lot of trading activity, though one must be open to any eventuality.
Price continues all the way up to a December high with no "volume" spikes. However,
when an attempt at a higher high is made, traders aren't interested. The fact that the
activity reflects the holiday is irrelevant. Price doesn't make a new high, and that's
that. It then begins a precipitous decline and trading activity at last increases,
suggesting that sellers are at last coming into the market and overwhelming demand.
Same principles as always.

The fact that price is testing potential R is no reason to short in and of itself. Your task
is to observe what is happening during that test. As for buying interest, traders have
brought price up over a hundred points, and if there were no buyers' interest at
present, price wouldn't continue to rise. The lack of activity suggests a paucity of
selling interest, not of buying interest.
A move thru R tells sellers that they may have been wrong, which is where successful
BOs, short-covering rallies, and "third time's the charrm" come from. It's up to you to
decide what your strategy is going to be and how you're going to play this: the reversal
off 680, the breakout, the retracement after the breakout. There is no "right way", but
rather choices made based on risk tolerance and risk management. There's no reason to
short unless and until you have some evidence of a reversal, e.g., a lower high.
Otherwise, you're just feeding the higher highs.

Quote:

Originally Posted by dsn

as a lot of people who have sold at this level over the last 4 years would then start coming
under pressure to buy.
That's it, in a more immediate timeframe. Swing highs and lows can and often do
provide S/R, but among the more important S/R levels are those at which the greatest
number of people have the most to win or lose. Price spent 15 weeks at this level (+/-)
this year. That represents a lot of trades. If price can't hold here, an awful lot of
people will be under water, and they'll be concerned. This is essentially the same
dynamic represented by the "head and shoulders", though most people focus on the
pattern rather than why the pattern formed in the first place, resulting in their not
knowing what to do with it.
For future reference, this is also why climactic tops and bottoms of swings often don't
provide S/R, because so few trades are taking place at those points (which is why the
reversals occur in the first place).