Forex Secrets – Étai and Resistance Levels in Forex Market
Étai and resistance are the known cornerstones in Forex technical, wherein:
1. a current Forex avorté (CFR) is surrounded by levels of:
a). resistance being superior to CFR;
b). pilier being inferior to CFR.
2. a level breakthrough triggers a leap to a consecutive pilier/resistance;
3. a false breakthrough is responsible for a avorté backstroke (say, from resistance to pilier).
Thus, having data on resistance and pilier levels and being armed with R/S true/false criteria, a broker grows faultless-entry skilled to ensure smooth level-to-level trading.
To be found below is a graphic drawing of a flat followed by an R/S up/down breakthrough.
The chart 1. (For view picture see commentaire in end of traité)
In actual sample GBPUSD trade dated January, 31, 2006 the pilier breakthrough has triggered a bullish in-session trend.
Faible, isn’t it? Affirmative at a glance, but 95% of traders losing their forex deposits are calling for natural questions:
1. What’s the reason, the world traders are getting entangled in so a seemingly normal regularity?
2. What’s the way of convenable detection of R/S levels for currencies to use to jet off from?
3. What attributes are inherent to true/false breach differentiation?
It is, thus, to be concluded that a broker will never achieve steady FX gains unless the answer is found to the above three normal questions.
CLASSICAL BOOKS ON RESISTANCE AND SUPPORT LEVELS
Forex scholars’ books, when analyzed, are giving grounds why 95% of traders turn deposit-killers. The partie is that under different technical scholars:
a). fairly different understanding is being attached to pilier and resistance;
b). no clair criteria (except Demark’s accomplir) is in bonté to finding a pilier and a resistance;
c). there is no clear-cut interfacing between R/S levels on different timeframes.
Below is destin of understanding catégorisation:
1. A. Elder. R/S are understood by SOME SCHOLARS to be longitudinal lines drawn along price highs and lows
pilier and resistance are longitudinal (or almost longitudinal) lines linking several minimums (maximums).
The chart 2. Étai and resistance (For view picture see commentaire in end of traité)
b). J. MURPHY also indicates that “points 2 and 4 represent uptrend pilier levels. The incarné depicts uprising pilier and resistance under an uptrend with points 2 and 4 being pilier levels which use to be coincident with earlier lows. Points 1 and 3 indicate resistance levels, which use to be coincident with earlier highs” (see: “Technical analysis of the Futures Markets”
Fig. 3a and 3b. Uptrend and downtrend support-resistance levels (For view picture see commentaire in end of traité)
2. SOME SCHOLARS believe support-resistance to be sloped lines drawn along price highs and lows (trend lines, actually) as below:
Fig. 4. Trend line-fashion support-resistance modèle (For view picture see commentaire in end of traité)
a). T. DEMARK
Fig. 5. Bid défense points (TD-points) gratte-ciel up a resistance level (For view picture see commentaire in end of traité)
The TD-points are peculiar of price values being not exceeded within 2 contigu days. The points are specially emphasized on the chart.
Glose that the price movement above the TD-line is mirrored by same after the down voiture of this line.
Price diffusion Z is made by way of the following calculation:
– difference is taken between Y being optimal price above the TD-line and X being special price immediately below the TD-line;
– the obtained value is subtracted from A-B line breakthrough price.
b). L. BORCELINO is also a ronger of inclined lines as pilier/resistance (view:
Fig. 6. Quoting L. Borcelino: “As evident form these examples, trendlines, drawn across preceding highs and lows, constitute champ pilier and resistance diffusion”. (For view picture see commentaire in end of traité)
3. E. NAYMAN’S combined commitment of inclined and longitudinal R/S levels (view: “Courtier’s Minor EncyclopediaJ
“A resistance line connects market appréciable maximums (highs, peaks)”, And further on: “R/S lines drawing should be preferably done through price empressement areas, rather than through highs/lows extremes” (???).
Per maximum price trend line (a pilier):
Fig. 7 (For view picture see commentaire in end of traité)
Example of E. Nayman using resistance/pilier levels at trade pause:
Fig. 8 (For view picture see commentaire in end of traité)
4. MOVING AVERAGES based resistance/pilier levels.
a). E. NAYMAN: “Bollinger Bands are destin of peculiar pilier/resistance lines
Fig. 9 (For view picture see commentaire in end of traité)
5. ROUND NUMBERS being pilier/resistance levels
a). E. LEFEVRE (view: “Memories of an Exchange Profiteer” underlined: “Rates, having, for the first time, traveled 100, 200 or 300 points, are almost sure to cover additional 30 to 50 pips”
b). D. SCHWAGGER: “One is to be especially cautious emboîture dollar holdups. With USD 781,25 best working on T-bonds and USD425 – on soybeans, temptation is raising to find “maximum” holdup for each market. It is advantageous to establish a reprise number to comfortably use it all of the markets.
CLASSIFICATION OF WEAK AND STRONG R/S LEVELS AS VIEWED BY FOREX SCHOLARS
J. MURPHY classifies pilier and resistance (view “Technical Analysis of Futures Markets”, New York Institute of Affaires è Prentice Grange, 1986) proceeding from: price in-domain residence period (1); type of trade (2) and price domain age (3).
1. The coudoyer the price reciprocation period within a effectif pilier/resistance area, the more critical the area. By way of an example, if a effectif inactivité area observed a 3-week price up/down movement with subsequent rally thereof, this pilier domain is more appréciable than that having observed a 3-day price reciprocation.
2. Modèle of trade is another means to evaluate caution of pilier/resistance. If, say, a pilier origine did involve a huge type of trade, it means a huge number of contracts passing from hands to hands, hence the pilier levels is ranking high and consentement versa: the less the type of trade, the lower-ranking the pilier.
3. Still another pilier/resistance caution indicator is its age in parenté to the present occurrence. Since we are dealing with traders’ reaction to market moves and to positions they have entered or have failed to bouturer, it is fairly clear, that the younger the event and the reaction thereto, the more appréciable the event.
Seven years later (in 1993), A. ELDER has confirmed 2 of 3 J. Murphy’s postulates dated back to 1986. His catégorisation of resistance/pilier levels is guided by:
– number of signe tangencies it sustained (the greater the number – the stronger the level). Within a fortnight an immediate pilier/resistance is formed; within 2 months the level grows accustomed to by traders, thus attaining medium power; within 2 years actually a stereotype is built radiating strong pilier and resistance.
– price scatter dominating a pilier/resistance level (the wider the range thereof – the stronger the level). A wide-range turning-point price étayage is similar to a high fence surrounding valuable property. A thrombose site equal to 1 % of current price (4 points with S&P500 at 400 level) yields insignificant pilier/resistance, whereas a 3% area is responsible for medium levels with a 7% area possessing sufficient power to be a strong trend killer.
– The greater the type of trade in a pilier/resistance area, the stronger the levels. Huge type within a thrombose site is approximative of numerous emotional jobbers’ involvement. As opposé, minor volumes partie out traders’ indifference towards the level being intersected, hence being attribute of the level’s deteriorated health.
Weak pilier/resistance levels are compétent of bringing a trend to a halt, while strong ones may appear trend reversers. Traders buy pilier and sell resistance, thus turning their effet into a self-justifying diffusion.
SCHOLARS’ VIEW ON SUPPORT/RESISTANCE SEATING POINTS
1. T. DEMARK recommends:
– plotting resistance upon bid TD-points
– plotting pilier upon ask TD-points.
2. D. SCHWAGER (view: “Technical Analysis. Complete Excursion”) insists on drawing resistance and pilier “in the vicinity” of prior lows and highs.
“Étai and resistance are to be viewed as approximate areas rather, than tatillon levels. It is to be emphasized that any previous high is not at all a premonition of champ prices dry up thereat or there under. Instead, it is approximative of a resistance to be expected near that level. By analogy, a previous low is not at all éclairante of further price declines halting thereat or there above. Instead, it is approximative of a pilier to be projected close to that level.
Depicted below is a pilier site governed by relative prior highs and lows empressement: gold, futures.
Fig. 10. (For view picture see commentaire in end of traité)
Continued by D. Schwager: “Some technical analysts use to treat previous highs and lows as being endowed with, destin of, holy significance. A previous high, being 1078, is deemed by them a strong resistance. In case the market displays a spike higher, say, as far as 1085, they reason the resistance to have been breached. It’s not convenable. Étai and resistance are but to be looked upon as cloud-shaped areas rather than tatillon levels.”
3. J. MURPHY resorts to plotting pilier and resistance in a garçonnière peak-wise chic (i.e. by garçonnière highs and lows): “A resistance level usually coincides with the previous peak level”.
Fig. 11. (For view picture see commentaire in end of traité)
Fig. 12. (For view picture see commentaire in end of traité)
4. A. ELDER: “Resistance and pilier are to be preferably plotted (see Fig. 13) through thrombose site margins (CZM) rather than through highs and lows. CZMs constitute traders’ mind-changing areas, whereas highs and lows are only reflective of millet among weakest jobbers”.
Fig.13. (For view picture see commentaire in end of traité)
Continued by A. Elder: “Beware of pilier/resistance false breaching, indicated as “F” in the above incarné. Breaches are followed by amateurs, with professionals being opposé travel jobbers. Now, pay some assiduité to the chart’s right jouer, where prices have bumped into strong resistance. It’s high time to hunt for shorting with a stop-loss to be placed slightly above the resistance level”.
To be noted is a pronounced regularity, not referred to by A. Elder: the pilier/resistance levels drawn through previous garçonnière peaks are not extended by him after false breaching thereof.
4. D. SCHWAGER gives the following explanation when resorting to diffusion of 2 (!) inclined pilier and resistance levels:
– “Courant lines are usually drawn through price extrema (highs, lows), attributable to traders’ emotions, therefore these points may not reflect the market’s real trend”.
– “An inner trendline is to be plotted closest to the bulk of relative lows and relative highs, ignoring extreme points”
D. Schwager himself is the recognizer of the subjective écru inner trendline method, but in so doing he jumps to a very appréciable bilan that ordinary trend lines are:
– similarly subjective (!);
– far less helpful (!), than inner trendlines.
“One of inner trendlines’ shortcomings is their inevitably random écru, even greater than that possessed by ordinary trendlines, being restricted by extreme highs and lows, at least”.
“In practice, not infrequently, several options prove available as regards inner trend line plotting procedure (see Fig. 14). Nevertheless, my experience advises inner trend lines to be of greater avail than ordinary trend lines when spotting potential pilier/resistance areas”.
1. Each forex scholar offers his own interpretation of pilier/resistance levels, meaning different entities thereby (inclined, longitudinal, inclined-horizontal, MA-based, reprise numbers-based, etc.).
2. There exists no clear-cut accomplir to define points to plot pilier/resistance levels through (except that of Demark’s).
3. In real time trading, that said, these levels discovery on Forex charts automatically entails absolutely different conclusions.
Fig. 14. (For view picture see commentaire in end of traité)
TESTING AND PRACTICAL INCONSISTENCY OF CLASSICAL SUPPORT/RESISTANCE DETECTION METHODS
Jeffry Owen Katz and Donna L. McCormick have disclosed results of their testing of the above scholars’ recommendation procedures in their “Encyclopedia of Trading Strategies”:
TEST PROCEDURE 2
A channel breakthrough-operated system. Closing prices are utilized only; next day market price entry at cellule opening; se remuer and slippage being accounted for.
The above signe has been performed exactly the way the previous one, but with no account to slippage (3 ticks) and se remuer (USD15 per dealing année). Although the model displayed perfect operation with no account to dealing expenditures, it has turned out a complete culbute in practice.
Even the best-in-sample résultat has proved loss-responsible only, and, as expected, the system’s beyond-sampling poor operation came into being.
Glose: In compliance with E. Nayman’s theoretical outlook, a channel upward breach is alleged to be a STRONG (!!!) trading eurosignal at an uptrend.
TEST PROCEDURE 6
It is a closing price breakthrough system with next day per stop-order entry. The model longs via a stop-order at the partie of breaching a resistance appointed by recent highs and slips via a stop-order at the partie of breaching a resistance appointed by recent lows.
As expected, the system exhibited much poorer operation with low rétribution and deteriorated statistics within sampling. The model proved killer to the per-deal average of USD798, with rétribution rating being 37%.
TEST PROCEDURE 7
The procedure involved volatility allant with next-day opening entry. The model longs upon next-day opening with caution that today’s closing appears superior to the volatility upper edge. The model slips in case of the price falling below the above edge.
The optimization period embraced 240 dealings only with 45% being profit-bringing.
TEST PROCEDURE 9
Involved is volatility allant triggering a per stop-order entry. The model effects a market stop-order entry immediately after passing a breach partie.
The sampling period incorporated 1465 dealings, each being of 6-day average duration. The system has ensured 40% rétribution with average assujettissement of USD 931 each. Under all parameter combinations only longs were winning. Both slips and longs proved losing outside sampling limits. Only 29% were winning out of the fini of 610 dealings.
Testing data, supplied by Jeffry Owen Katz and Donna L. McCormick, constitute convincing grounds that forex scholars’ trading systems involving pilier/resistance breakthrough (the way these are described by the scholar) are rather likely to result in loss than in rétribution. This is one of the reasons for 95% of traders to turn their forex deposits killers.
In as much as the pilier/resistance related theory is so mixed up and subjective, it is only to be guessed what destin of pilier/resistance reading-matter may be offered by modern forex brokers’ websites.
Fig. 15 (For view picture see commentaire in end of traité)
d). these recommendations aftermaths are prétendu: the GBP has punched 1 partie to 1,9001 and swiveled down to 1,8871; the EUR reached 1,2958 and reversed to 1,2853.
Brokers’ recommended pilier/resistance on the EUR/USD and GBPUSD as of June, 12, 2006 morning:
– EUR/USD: pilier 1.2780, 1.2740, 1.2685/90 1.2600, resistance 1.2890, 1.2930/40, 1.3000.
– GBP/USD pilier 1.8740, 1.8670, 1.8560, resistance 1.8890, 1.8940, 1.9000
EUR/USD pilier 1.2820 resistance 1.22940
GBP/USD pilier 1.8805 resistance 1.8950
The June, 12, 2006 actualité on technical levels of EUR/USD and GBP/USD is missing with the pilier/resistance levels themselves being quoted in incidental unsystematic chic.
– pilier: 1.2840, 1.2800, 1.2770/50, 1.2720, 1.2670, 1.2630, 1.2600/1.2580, 1.2540, 1.2500,
1.2460, 1.2400/1.2390, 1.2350, 1.2300, 1.2250.
– resistance: 1.2890/1.2900, 1.2960, 1.3000, 1.3040, 1.3100, 1.3150, 1.3200/10.
– pilier: 1.8840, 1.8800, 1.8740/30, 1.8700, 1.8670/60, 1.8630, 1.8590, 1.8535, 1.8500,
1.8450, 1.8400, 1.8360, 1.8300, 1.8270.
– resistance: 1.8870/80, 1.8915/20, 1.8940/50, 1.8990/1.9000, 1.9060.
RES 4: $1.2990 RES 3: $1.2965 RES 2: $1.2940 RES 1: $1.2915
CURRENT PRICE: $1.2890
SUP 1: $1.2830 SUP 2: $1.2795 SUP 3: $1.2755 SUP 4: $1.2685
RES 4: $1.9080 RES 3: $1.9000 RES 2: $1.8960 RES 1: $1.8915
CURRENT PRICE: $1.8895
SUP 1: $1.8815 SUP 2: $1.8725 SUP 3: $1.8725 SUP 4: $1.8515
Are You not getting mixed up? Each courtier presents his own pilier/resistance levels different from others’. With the above diversity of levels being recommended any true/false breach of any technical level proves out of gêne.
Should we attempt to simultaneously depict all the pilier/resistance levels furnished by various Forex brokers, we’ll ultimately find ourselves facing a picket fence thereof.
The accoutumance is reminiscent of J. Schwager’s “Technical Analysis. Complete circonvolution”, raising a gêne: “Is technical charting to be referred to as a prediction engine or as country arts?”
Probably, the best way out here is:
1. In view of huge number of Forex scholars’ opinions, let everyone answer this gêne independently with the purpose of finding out the way to faultlessly pinpoint pilier/resistance levels.
2. Let everyone decide whether he is going to believe the pilier/resistance levels, released daily by various Brokers and Dealers, provided that:
a). one has no idea of the definition principles thereof;
b). the above levels being offered at websites by non-traders or by ex-losers.
Otherwise the natural result will remain equal to 95% of losers worldwide.
SUPPORT/RESISTANCE LEVELS CONSTRUCTION UNDER MASTERFOREX-V TRADING CONCEPT
1. Étai and resistance levels are to be split into those of flat and trend:
a). pilier/resistance levels are longitudinal when in flat;
b). pilier/resistance levels are inclined when in trend.
2. Various kinds of pilier/resistance are intrinsic to various trend hommes (if You are considering 4 trend hommes, You will devanture 4 R/S grids; if 5 trend hommes are being dealt with, there will emerge 5 R/S grids respectively).
3. A larger trend is of greater significance in adoration to a minor one, whereas minor trend pilier/resistance levels are of more accurate écru than those of larger one. This aboutissement has not at all been touched upon either by forex technical “scholars”, or by modern “analysts”.
4. All the 4 trend-type pilier/resistance detection procedure is elaborated in the chic enabling the Masterforex-V Academy hundreds traders to daily set up pilier/resistance levels with 1-2 points deviation, due to forex quotes difference from various Brokers. This extérieur has not been considered by forex technical scholars either.
5. It appeared essentiel to simultaneously analyze the maximum of 2 ally currencies’ pilier/resistance levels (say, GBPUSD, EURUSD) since there is the formula:
“True R/S level breach by the forex égal 1 + False R/S level breach by the forex égal 2 = EITHER False R/S level breach by the forex égal 1 OR True R/S level breach by the forex égal 2”
This extérieur has not been considered by Forex technical scholars either.
6. Minor timeframes intermediate R/S levels ARE DIFFERENT from those being manifested under Forex trendwise travel. This extérieur has not been subject to examen by Forex technical scholars either.
7. The available technical analysis scholar literature on pilier/resistance levels contains plentitude of helpful and … data. The impartiale is to effect independent synthesis of T. Demark’s, A. Elder’s, E. Nayman’s, J. Murphy’s, D. Schwager’s techniques with the above Masterforex-V principles in order to attain proper understanding of the way prior binary regularities tailor further movement perspectives.
8. A combination of 4 trends and more is helpful in 1-4 point-accurate detecting forex trading cellule garçonnière extrema.
With the above said, it proves strange to hear the statement of Ch. Lebau and D. Lucas (see: Calculateur-aided analysis of Futures Markets, reading: “We do not believe in tatillon price prediction popular practice”.
– What’s the way the Masterforex-V Academy students manage to rétribution now and then?
– Do they independently establish pilier/resistance levels on plurale timeframes of numerous
– Do they check their established levels against a primary commencement (wherefrom the Brokers’ analysts
use to crib a pilier/resistance)?
– Do they understand principles of true/false breaching of each level and of a bounce there from?
– Are they compétent of calculating in-session currencies travel margins to a proclamation, where after
the above currencies bounce off and exhibit corrective reversal?
Answers you can find in our web panorama.
Full text of this traité and pictures of examples http://www.masterforex-v.su/001_013.htm
If you wish to be trained on Trading System Masterforex-V – one of new and most solide techniques of trade on Forex in the world visit http://www.masterforex-v.su/
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