nonlinear » Tue Feb 18, 2014 1:56 am wrote:Solid videos. For those with heavy chart time, do you agree that (outside of the many levels created by price action tops and bottoms) the following tend to form strong support and resistance levels across different time frames:
1) Weekly and monthly hi/lo
2) Daily hi/lo
3) Whole numbers (e.g., 1.3000, 1.3100, 1.3200, etc.)
4) Pivots, although 1, 2, & 3 might be better
Any others?
Others to add to that list would include fibonacci retracement & extension levels, and maybe Murray Math lines.
I know there are traders who use some of these things and swear by them, but in my own extensive backtesting I was unable to find compelling evidence to indicate that any of these levels are of consistent value.
Daily, Weekly, Monthly high/low I don't tend to find useful at all. On the occasions when the market does respect them, the chances are there's a support/resistance zone already drawn there on the chart anyway. All you need do is look at Daily, Weekly and Monthly charts to see how often the high/low of the previous candle is breached by the one following - all the time.
Whole numbers - maybe with some pairs, but I haven't found it all that reliable even so. Take AU for example, its been up & down through a huge whole number - 1.000 - so often that its obvious it means nothing to the market. EU seems to respect 1.20, 1.50 and 1.60 - but they're at the extremes of EU's trading range. It has no problem at all busting up & down through 1.30 and 1.40. If a round number is significant to the market, the drawing of S/R zones will quickly make it evident anyway so it really doesn't need special consideration imho.
I spent a ton of time trying to build a system around pivots, indeed one of the indicator-heavy screenshots in my first vid was from such a system. I was unable to create any rules at all that consistently worked. Sometimes the market would respect those lines, and other times it'd just ignore them - and "sometimes" is a killer in forex. After all, sometimes a moving average cross is a great signal as well.
With Murray Math I ran a series of EAs that simply spat out data which I then ran through a program to test how often price moved off each of the lines in a certain direction, taking into account trend (in relation to a moving average) and the angle of approach to the line. I did this for a wide variety of settings with the indicator. No significant trading edge was there to be found, nothing better than the good ol' coin toss method anyway.
The same is true of Fibs. Sometimes you'll see a perfect bounce off a 61.8% retrace and say wow, look at that, Fibs are awesome. But there's so many other times when Fib levels aren't respected at all by the market, enough to make me ignore it as a tool.
Edit: I could really offend some people by adding Elliot waves to the list as well. I've seen EW practitioners who base their entire trading off those waves, and its breathtaking the lengths of denial some of them go to when charts misbehave, as they frequently do. EW is all about predicting where the market will go next & trying to force-fit market movements to a theory, and to me it looks about as scientific as tarot cards.
I'll only add indicators & methods when my own backtesting has shown me that they provide a consistent edge. I haven't found that with any of the above, so I don't use them. Other traders do, and I wish them all the best. |
