Thursday, November 6, 2008

11-6 Locating True Support Resistance






It has become very apparent to me that locating the right area of support and resistance is one of the most vitale keys of a good trade set up. TSR may not seem to be well defined but looking closer and focusing on longer time frames can give a definite price the pair has struggled with and has been sensative to and help with a good entry. Looking at the AUD/USD can certainly prove this analysis. After the daily candle closed above the fractal resistance on 11-



4 (CHART A), it now showed that it had committed to holding above. That does not mean it's going to the moon. It just showed me that if I would find the TSR that it had committed above, I could certainly put the odds in my favor of a winning trade with minimal draw down. I looked at an area it could now use as support. The 38% retracment of the move from the lows on the day lined up nicely with the TSR I had chose based on candle closings, wicks and the majority of an area of daily highs (1 hr chart B).



I set an alert for .6860 or so and got alerted. A trading partner had also looked at this with me and we agreed that .6835 is the true price. The low of the day was .6831 before moving up to retest the previous days high for a run over over 200 pips. After that I observed that price did not want to commit above those highs. From the methodology Chris teaches, price was at the extremes of the range and did not want to go outside, for whatever reason, yet I was still looking to go long on this pair as it still seemed to me to be bullish with that close above TSR yet again on the daily chart. I located another area by looking a little closer to see what the pair may seek out as the next likely area for a pull back. I set my line at .6697 or so and got up to see that the pair has hit it almost to the pip. Looking at this chart (4 hr chart C),





it is a clearly defined area the price has struggeled to go through nearly every time is has come into contact with it over the last 5 weeks. The thing I like is the higher highs and higher lows showing a bullish flow at the moment which puts the odds more in my favor. Locating these areas are of upmost importance in my trading success. Combined with risk management, discipline and trade management to secure profits, even in a very low liquid market I can still see areas that give good opportunities, I just have to wait on them a little more and let the set up define itself. Although I did not trade either one of these, just knowing that price has went to my TSR and offered a good profit builds confidence in the ability to understand TSR price points. I am also keeping in mind that it has come back down below the previous TSR and the daily highs that was resistance earlier this week and closed on a daily chart. Right now it is in the middle of the range of the highs and lows of the week, but it did make a new high this week and has not taken out the low as of yet. I will observe to see what price may offer.