Support and resistance lines

We continue the topic we started in the 58th issue of ForTrader.org magazine. It is devoted to the construction and use of supports and resistances in swing trading.

Example #3. Pivot points. Daily chart. Determination of the daily price trend on 04.02.2009 (for Wednesday).

Weekly candle by the calculation is white (the calculation of the week is omitted). After the closure of the daily candle from 03.02.2009 there was a pivot point, which consists of the following properties:

1. volumes.

There are two consecutive white candles for (02 - 03).02.2009 (see Fig. 1).

The difference between the high and low of the candle from 02.02.2009 is 1.2896 - 1.2704 = 192 points.
The difference between the high and low of the candle from 02/03/2009 is 1.3055 - 1.2800 = 255 points.
Calculated value of volumes on the last closed candle is calculated.

The last two candles closed white, so the following proportion must be observed: the ratio of the difference between the maximum and minimum to the number of volumes of the penultimate candle should be equal to the ratio of the difference between the maximum and minimum to the number of volumes of the last candle.

The ratio 5526 / 192 should equal 5445 / 255. Instead of volumes on the last closed candle (5445) put X and calculate the calculated value of volumes.

Х = (255 ? 5526) ? 192 = 7339

The result: according to the calculation, the volumes were supposed to give 7339, but they gave 5445, that is, the volumes showed that traders do not want to work upwards. this is the first signal for the pivot point.

2. resistance lines.

Rules for drawing resistance/support lines:
а. If there are two identical "tails", it is desirable that the resistance/support line crosses both "tails" (see Fig. 2).

If you draw a line only on one peak (see Fig. 2), the candle maximum of 28.01.2009, the price may not reach the resistance line neither on 03.02.2009 (Tuesday), nor on 04.02.2009 (Wednesday), as seen in the figure. The price went down on 04.02.2009 without reaching the resistance line. So, the line was built incorrectly.
The resistance line, drawn in Figure 2 on 04.02.2009 (Wednesday), gave the value 1.3082, i.e. the price has reached the level of 1.3068, and retreated.

In figure 3 the resistance line and the price touching the third point, (the candlestick from (27 - 28).01.2009) is plotted correctly, i.e. the resistance line crosses both tops, then the price on 04.02.2009 gave the fourth point on the line resistance.

The resistance line, drawn in Figure 3 on February 04, 2009 (Wednesday), gave the value of 1.3027 (the fourth point), the price having reached the level of 1.3068, went into a pullback - this is the second signal for the pivot point: the presence of the fourth resistance line touch point.

3. historical resistance level

is determined on the monthly chart. The nearest resistance level, near which the price is located, in this case it is 1.3070, is taken.

The "Swing Index" indicator

works as follows (see Fig. 4):
If on the last run the indicator moves on the price, there is no information.
If on the last run the indicator moves in the opposite direction from the price movement, then the indicator gives information about the presence of the property directed against the price movement.

The indicator is working resistance / support lines. Figure 4 shows that the indicator on the closed candle from 03.02.2009 has a fourth point of contact with the resistance line, it means that the indicator "Swing Index" gives the signal of lower work.

5. Fibonacci levels.

We consider the last completed movement of the price from the top downward, there are the maximum ("High" candle from 18.12.2008, equal to 1.4716) and minimum of this movement ("Low" candle from 02.02.2009, equal to 1.2704).
The difference between the high and low is 1.4716 - 1.2704 = 2012.
The Fibonacci level is 14.6%.
1.2704 + (2012 ? 0.146) = 1.2704 + 294 = 1.2998.

Bottom line: immediate future Fibonacci 14.6% equals 1.2998.

6. The average lines of the EMA.

In this case 13 EMA middle line on the candle from 04.02.2009 (see Fig. 5) gave the value of 1.3024 in the floating mode.

Bottom line: As a result of the research, six reversal properties were obtained and the probability that the candle 04.02.2009 will be black is high. The price reversal point will occur in the channel 1.2998 - 1.3070.
The price made a high of 1.3068 on that day and went into a pullback.

Read more in issue 60 of ForTrader.org.