YOUR FREE TRADING SYSTEM: http://www.netpicks.com/tjgiveaway1 When I look at an area that has held price, what matters to me is how long price hung around at the support or resistance level. Fast rejections due to buying or selling pressure is something I would consider strong. If price tends to hang out at the level or rejects and quickly returns, I think it’s safe to suggest lack of buying or selling interest. Multiple Price Rejections I think it is a dangerous practice to simply assume that multiple hits and rejection is a direct relation to strong levels. What occurs quite often is a confidence booster that in the end, causes some oversize in the loss department. Read more: http://www.netpicks.com/support-and-resistance-trading/

1. Not In My Playbook
http://www.netpicks.com/support-and-resistance-trading/

2. When you write trading tips for a blog,
you often wonder if people read them
and act of the information that is
presented. Receiving emails is a great
way to know you are contributing to
the trading world in some small way.

3. I received an email from a reader
named Devon and it was in regards to
support and resistance trading.

4. Shane - I've seen many of your trading blog post
and I think they are terrific. My question
however is that I see trades around support or
resistance areas and you never take them. I've
also seen you trade right into a support or
resistance level. Since multiple hits of a level
make it strong why do you skip them?

5. Thanks for the email Devon. Over the
years I lost count how often I've heard
that multiple hits on a support or
resistance level tends to make it
stronger.

6. Some trading systems and methods
actually use this belief as the
backbone of the method. Stronger is
certainly a matter of opinion and what
some may consider strong, others will
consider it weak.

7. So the question is how do you
measure how strong a level is? What
measurable variable do you use to tell
the difference between a strong hold
and weak hold? Many traders would
have totally different opinions on
which S/R levels are good ones to
trade.

8. When I look at an area that has held
price, what matters to me is how long
price hung around at the support or
resistance level. Fast rejections due to
buying or selling pressure is something
I would consider strong.

9. If price tends to hang out at the level
or rejects and quickly returns, I think
it's safe to suggest lack of buying or
selling interest.

10. I think it is a dangerous practice to
simply assume that multiple hits and
rejection is a direct relation to strong
levels. What occurs quite often is a
confidence booster that in the end,
causes some oversize in the loss
department. This graphic should
explain.

12. There is obvious buying pressure at
the levels marked with the arrows and
you can clearly see the buyers stepped
in quite strongly. Keep in mind that
those who trade support/resistance
bounces usually place their stop just
beyond the level.

13. These are solid rejections which can
often times lull traders into trading too
confidently and increasing their
position size.

14. The more traders that buy at this level,
the more stops tend to cluster beyond
the level. The red line signifies where
all the textbooks tell you to place your
stops when utilizing support trading.
It's a disaster waiting to happen when
the level breaks, stops are triggered,
and slippage is a strong possibility.

16. Even worse, the losses a trader will
take will depend on how aggressively
they increased position sizing because
"they knew" the level would hold?

17. But there is a clue that shows that the
conviction of the buyers is beginning
to slacken and a heads up for you to
adjust position sizing or skip the next
trade. Notice the black lines plus the
letter "L". There was strong rejections
at the support line but the excursion
away is lessening.

19. The last push even has an extremely
bull candle showing strong upwards
momentum that is stopped right in it's
tracks.

21. Notice the far right of the chart that
when price broke the support level
that had multiple direct hits, it broke
with strength taking stops with it.

22. I don't trade support and resistance
bounces as seen in that chart. I prefer
bounces and a pullback because my
experience for myself (and through
many many trades) playing the
bounces as shown don't have an edge.

23. As well, I will also be interested in
flushes in the support and resistance
zones.

24. This way of trading for me applies to
day trading and swing trading. It's
valid on any time frame.
These are not trades that are blindly
taken and also revolve around trend
direction, state of higher time frame
(not necessarily trend direction), and
overall context

25. This chart highlights roughly what I
would look for. Price had just
slammed through an area of resistance
(now marked Fmr Resistance) and
pulled back and price was supported
(marked Current Support) where
priced moved away to the previous
high.

27. The pullback to current support was
anything but strong (the candles tell
the story) and we see a test of current
support where price breaks it and is
quickly bought back. I marked that as
a flush of weak longs given the
preceding price action. That is a
sloppy test might be a trade for me.

28. Imagine for a moment that price did
not flush but did continue upwards
after the bounce as seen on the chart.
The pullbacks would come into play as
ways to enter this move. There are
various ways to enter pullback trades
but those are beyond the scope of this
trading tip.

30. I believe every trader should take what
they have read and seek to verify the
validity of the content through their own
testing. Reading and being taught is one
thing but I have always found the testing
phase of any "market truth" much more
valuable than what I read or what taught.

31. If you have found success trading
support and resistance as taught by
the book, I applaud you. I just never
found validity in trading it the way it is
normally presented.