Determining Support & Resistance Levels on Charts

C

CreditViolet

Guest
#1
Here is Wyckoff's method of determining support and resistance

"My favorite method (and I believe this the most accurate method) of determining support and resistance levels is to look at a bar chart and its past price history and then see at what price levels the highs, lows and closes seem to be touching the most. This method of determining support and resistance levels works on any bar chart timeframe--hourly, daily, weekly or monthly. Many times a bunch of highs or lows will be concentrated in a small price area, but not at one specific price. If that's the case, I will determine that area to be a support or resistance "zone." The one thing I will point out with determining support and resistance zones is that you don't want your zone to be so wide that it's virtually useless from a trading standpoint.
Major price tops and bottoms in markets are also major resistance and support levels. Unfilled price gaps on charts also qualify as very good support and resistance levels. Trendline support and resistance is also very useful to the trader. Projecting these trendlines to determine future support and resistance areas is extremely effective.
It's important to note that when a key support level or zone is penetrated on the downside, that level or zone will likely become key resistance. Likewise, a key resistance level or zone that is penetrated on the upside will then likely become a key support level or zone.
Another way to discover support or resistance areas is by looking at "retracements" of a significant price move--price moves that are counter to an existing price trend. These moves are also called "corrections." For example, let's say a market is in a solid uptrend. That uptrend began at the 100 price level and prices rallied to 200. But then prices backed off to 150, only to then turn around and continue to rally higher. This would be considered a 50% retracement of the move from 100 to 200. The 150 level proved to be solid support. In other words, the 50% retracement level proved to be a solid support level because prices dropped by 50% and then moved back higher. The same holds true for downtrends and "corrections" to the upside.
There are a few retracement percentages that work well at determining support and resistance levels. They are as follows: 33%, 50% and 67%. There are also two other numbers called Fibonacci numbers. (Fibonacci was a mathematician.) Those numbers are 38% and 62%. So, these five numbers are the best at determining retracement support and resistance levels. Most of the better trading software packages have these five percentages calculated in a tool, so that all you have to do, for example, is click your mouse at the beginning of the price trend and then at a high, and the percentage retracements are laid out right on a price chart.
Still another way that support and resistance levels can be identified is through geometric angles from a certain key price point. W.D. Gann, a legendary stock and commodity trader who died in 1955, is the most noted proponent of this method. He also used the same five numbers to calculate his angles. Again, the better trading software will provide "Gann fans" to plot the angles on the charts.
Finally, support and resistance levels for markets can be determined by "psychological" price levels. These are usually round numbers that are very significant in a market. For example, in crude oil, a psychological price level would be $20 per barrel, or $25, or $30. In soybeans, a price of $5.00 or $6.00 or $4.00 would be a psychological level. In cotton, 50 cents would qualify. Silver would be $5.00.
There are other methods traders use to determine support and resistance levels, but those mentioned above are the most popular. "

Works pretty well too
 
#2
Hi,

I've a doubt in determining the support and resistance levels/trendlines.

1. Which point to consider in a bottom when drawing the S/R levels/trendlines, if it has a long spike/bar. Whether the bottom of the spike or we can just ignore that single bar and concentrate on the somewhat "congested area"? Viceversa for top.

2. How to calculate the S/R congestion area?

3. Is pivot point and levels(including S1, S2, R1, R2) are confined to daytrading or it can be applied for short-term/intermediate term trading also?

Thanks,
Praveen.
 
#5
Here is Wyckoff's method of determining support and resistance

"My favorite method (and I believe this the most accurate method) of determining support and resistance levels is to look at a bar chart and its past price history and then see at what price levels the highs, lows and closes seem to be touching the most. This method of determining support and resistance levels works on any bar chart timeframe--hourly, daily, weekly or monthly. Many times a bunch of highs or lows will be concentrated in a small price area, but not at one specific price. If that's the case, I will determine that area to be a support or resistance "zone." The one thing I will point out with determining support and resistance zones is that you don't want your zone to be so wide that it's virtually useless from a trading standpoint.
Major price tops and bottoms in markets are also major resistance and support levels. Unfilled price gaps on charts also qualify as very good support and resistance levels. Trendline support and resistance is also very useful to the trader. Projecting these trendlines to determine future support and resistance areas is extremely effective.
It's important to note that when a key support level or zone is penetrated on the downside, that level or zone will likely become key resistance. Likewise, a key resistance level or zone that is penetrated on the upside will then likely become a key support level or zone.
Another way to discover support or resistance areas is by looking at "retracements" of a significant price move--price moves that are counter to an existing price trend. These moves are also called "corrections." For example, let's say a market is in a solid uptrend. That uptrend began at the 100 price level and prices rallied to 200. But then prices backed off to 150, only to then turn around and continue to rally higher. This would be considered a 50% retracement of the move from 100 to 200. The 150 level proved to be solid support. In other words, the 50% retracement level proved to be a solid support level because prices dropped by 50% and then moved back higher. The same holds true for downtrends and "corrections" to the upside.
There are a few retracement percentages that work well at determining support and resistance levels. They are as follows: 33%, 50% and 67%. There are also two other numbers called Fibonacci numbers. (Fibonacci was a mathematician.) Those numbers are 38% and 62%. So, these five numbers are the best at determining retracement support and resistance levels. Most of the better trading software packages have these five percentages calculated in a tool, so that all you have to do, for example, is click your mouse at the beginning of the price trend and then at a high, and the percentage retracements are laid out right on a price chart.
Still another way that support and resistance levels can be identified is through geometric angles from a certain key price point. W.D. Gann, a legendary stock and commodity trader who died in 1955, is the most noted proponent of this method. He also used the same five numbers to calculate his angles. Again, the better trading software will provide "Gann fans" to plot the angles on the charts.
Finally, support and resistance levels for markets can be determined by "psychological" price levels. These are usually round numbers that are very significant in a market. For example, in crude oil, a psychological price level would be $20 per barrel, or $25, or $30. In soybeans, a price of $5.00 or $6.00 or $4.00 would be a psychological level. In cotton, 50 cents would qualify. Silver would be $5.00.
There are other methods traders use to determine support and resistance levels, but those mentioned above are the most popular. "

Works pretty well too
No support/resistance level should be taken in isolation. There are several factors that determine the market direction apart from supp/resistance. For eg:
1. Major and Intermediate trends: Where is the current major(primary) trend headed? There is a very good saying that "bear-markets have no support and bull markets have no-resistance". How far has the major trend progressed so far? For e.g. the present bear-market is already more than one year old for Nifty. So you have to look at support and resistance levels with these biases.

2. Price and Volume: How does price react when it touches these supp/resist levels? How is volume compared to previous days? How is market reacting to market news at these levels? if bad news is ignored at a resistance area, its a good sign for breakout.

3. There are several key areas that act as natural support/resistance:
historical highs/lows
Fib retracement levels (32%,50%,68%)
200-DMAs, 100-DMAs, 50-DMAs, etc
Monthly & Weekly Pivots, etc.
Of course all of them are definitely not going to work out. But given such a large number of indicators, one of them is bound to work at any given time!

so better take something out of everything and not concentrate your time and effort in any one concept like support/resistance, and then use your own judgement to determine where the markets are headed. Once you have done so, stick to it no matter what. Don't be afraid of intraday wiggles and keep your stop-loss at safe distances (also considering the key supp/resist. levels). If your TA homework is correct, it won't be fired 80% of the time.
Happy Trading/Investing!

Cheers :)
 

RSI

Well-Known Member
#6
Here is Wyckoff's method of determining support and resistance

"My favorite method (and I believe this the most accurate method) of determining support and resistance levels is to look at a bar chart and its past price history and then see at what price levels the highs, lows and closes seem to be touching the most. This method of determining support and resistance levels works on any bar chart timeframe--hourly, daily, weekly or monthly. Many times a bunch of highs or lows will be concentrated in a small price area, but not at one specific price. If that's the case, I will determine that area to be a support or resistance "zone." The one thing I will point out with determining support and resistance zones is that you don't want your zone to be so wide that it's virtually useless from a trading standpoint.
Major price tops and bottoms in markets are also major resistance and support levels. Unfilled price gaps on charts also qualify as very good support and resistance levels. Trendline support and resistance is also very useful to the trader. Projecting these trendlines to determine future support and resistance areas is extremely effective.
It's important to note that when a key support level or zone is penetrated on the downside, that level or zone will likely become key resistance. Likewise, a key resistance level or zone that is penetrated on the upside will then likely become a key support level or zone.
Another way to discover support or resistance areas is by looking at "retracements" of a significant price move--price moves that are counter to an existing price trend. These moves are also called "corrections." For example, let's say a market is in a solid uptrend. That uptrend began at the 100 price level and prices rallied to 200. But then prices backed off to 150, only to then turn around and continue to rally higher. This would be considered a 50% retracement of the move from 100 to 200. The 150 level proved to be solid support. In other words, the 50% retracement level proved to be a solid support level because prices dropped by 50% and then moved back higher. The same holds true for downtrends and "corrections" to the upside.
There are a few retracement percentages that work well at determining support and resistance levels. They are as follows: 33%, 50% and 67%. There are also two other numbers called Fibonacci numbers. (Fibonacci was a mathematician.) Those numbers are 38% and 62%. So, these five numbers are the best at determining retracement support and resistance levels. Most of the better trading software packages have these five percentages calculated in a tool, so that all you have to do, for example, is click your mouse at the beginning of the price trend and then at a high, and the percentage retracements are laid out right on a price chart.
Still another way that support and resistance levels can be identified is through geometric angles from a certain key price point. W.D. Gann, a legendary stock and commodity trader who died in 1955, is the most noted proponent of this method. He also used the same five numbers to calculate his angles. Again, the better trading software will provide "Gann fans" to plot the angles on the charts.
Finally, support and resistance levels for markets can be determined by "psychological" price levels. These are usually round numbers that are very significant in a market. For example, in crude oil, a psychological price level would be $20 per barrel, or $25, or $30. In soybeans, a price of $5.00 or $6.00 or $4.00 would be a psychological level. In cotton, 50 cents would qualify. Silver would be $5.00.
There are other methods traders use to determine support and resistance levels, but those mentioned above are the most popular. "

Works pretty well too
Unfortunately CV is not posting in this forum anymore. So I can't hope for a clarification from him. But the quoted version of the post seems to be slightly different than the Wyckoff approach. I must clarify that I am having very limited knowledge with regard to Wyckoff trading method. As per my information,

1. Wychoff was not a fan of Gann. He did not use gan fan/gan angle etc.

2. I doubt whether Wyckoff used fib retracements at all. As far as I know, he was using only 50% retracement.

3. I am 100% sure that Wyckoff never used any computer during his entire lifetime. So all references to computers in the quoted version must have come from some other source.

4. I doubt whether Wyckoff ever told to lookout for support and resistance around round numbers

5. As far as I know Wyckoff advocated staying with the trend i.e. major trends (not minor fluctuations). He advocated looking for preliminary demand, automatic reaction, selling climax, secondary test and JOC (jump over creek - this is a term invented by Wyckoff student rather than Wyckoff himself) and buying when the SOS (sign of strength) is visible or on JOC. Reverse for selling. Preliminary supply, automatic reaction, buying climax, secondary test and then breaking of ice (this term is also coined by student of Wyckoff). So if someone says Wyckoff method I understand support and resistance in these context. I doubt whether Wyckoff advocated new positions in the middle of trend. He might have advocated adding to one's position in the middle of trend - I am not quite sure.

If someone has better knowledge about support and resistance as per Wyckoff method and if they find what I have posted here is wrong, I earnestly request them to post here.

I am constrained to post these things here as I feel what is posted as Wyckoff method is not exactly Wyckoff method but seems to contain many other things as well. A newbe should not go on wrong path after reading the post. If I am wrong, I am quite happy to learn the correct thing.

Thanks and regards
R. S. Iyer
 
Last edited:
U

uasish

Guest
#7
Mr Iyer,

Jesse,may have started the paragraph with 'Wycoff' and later on subsequently he added from his other notes,(in fact he had everything very well systematized way of storing all info in his computer File wise / catagory wise,as we often see in libraries,so unlike me at times of need he dont have to search from a garbage,which many a times i land up with).
Hope this clarifies,that the other methods may not be of Wycoff but relevant to the subject matter,thks for bringing to our notice this 2004's post of Jesse.

Asish
 

RSI

Well-Known Member
#8
Ashish,
Thanks for the clarification. I was bit surprised by the heading wyckoff method. Your post has cleared my doubts.

I did not say whatever is posted there is invalid. I had doubt as to whether Wyckoff said all these things. I think I myself have made clear about this aspect in my earlier post.
Thanks and regards
R. S. Iyer
 
H

hari09omkar

Guest
#9
Unfortunately CV is not posting in this forum anymore. So I can't hope for a clarification from him. But the quoted version of the post seems to be slightly different than the Wyckoff approach.

1. Wychoff was not a fan of Gann....

2. I doubt whether ...

3. I am 100% sure that Wyckoff never used ....

4. I doubt whether Wyckoff ever told ...

5. ... I doubt whether Wyckoff advocated new positions in the middle of trend...
If someone has better knowledge about support and resistance as per Wyckoff method and if they find what I have posted here is wrong, I earnestly request them to post here.
Sir,u are right or wrong in all these doubts/assertions on Wyckoff,is a different question.But it is sure that CV was 100% right about that article to be of Wyckoff.
Bcz that article is not of the famous Richard Wyckoff,the legendary tape-reader,but of another Wyckoff : Jim Wyckoff.Now,this Wyckoff is a snake oil vendor or not is a good discussion.Here is the original article:

http://www.jimwyckoff.com/articles/edu/support-resistance.html

Jim Wyckoff posted this article(in full or in part) in several other places also.For example:

http://www.traderslog.com/Determining-Support-Resistance-Levels.htm

Shakespeare wrote what's in a name.But here the name has bewildered us.:D

Btw,good question raised Iyer.
 
H

hari09omkar

Guest
#10
Mr Iyer,

Jesse,may have started the paragraph with 'Wycoff' and later on subsequently he added from his other notes..
Nothing.It's all copy-paste Asishda.But I am sure CV doesn't agree to most of this article anymore.
 

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