Part 1. An Algorithm Based Support & Resistance ToolWelcome!
Today I'll be demonstrating the efficacy of a method I've determined to identify and trade support and resistance (S/R) zones in real-time.
Normally, traditional technical analysis requires a S/R zone to experience multiple validation events (touches, reverses, bounces), before it becomes tradeable. The downside to this method is that numerous profitable trades are bypassed while confirmation is being developed. Unfortunately, many of the most profitable S/R trades appear soon after a level develops (think double/triple tops).
After much research and experimentation, I've come up with a tool/indicator that can identify significant S/R zones in real-time. Once a bar closes, there is ZERO repainting. As the chart above shows, this means that you can trade a level as soon as price returns to it - no matter how quickly that occurs.
The tool takes into account (not in order of weight):
Price action
Volume
Chart patterns
Volatility
Momentum
By combining multiple methods of analysis, levels are formed quickly, yet accurately. It's pretty important at this point to mention that I'm not claiming this is a get rich quick plan. All the tool does is identify potentially profitable zones that price will often react to. However, it's not infallible (nothing is), and it doesn't teach you to trade. You, as the trader, need to know how to trade price action to ensure a confirmation signal is given before trading a S/R event. You also need to know how to set a stop less, determine appropriate levels of risk, and undertake trade management to ensure profitability.
Now, some people say S/R zones are easy to identify - in that case, what's the point of this tool? Simply, this tool takes the guesswork/bias out of S/R zones. As human beings, we're uniquely unsuited to investing money. We're irrational, emotional, ill-disciplined, and impulsive. Frankly, the average person (of which I'm one), needs every useful tool they can get their hands on. This tool means that one step (determining a trade area), is covered for you. That's it.
Given the proprietary nature of the tool, and the value it has, I won't be releasing the code for it. At least not yet. However, something I really enjoy is helping other traders, so I've decided to start producing charts across various markets that identify relevant S/R zones identified by this tool. At this point in time they'll be provided free of charge, but depending on the demand for multiple markets (and time frames), that may change in the future.
Oh, and remember that zone I mention in the chart above? The one between 27.47 and 27.17? The one from 1995? See the comments below for an example of how it came into play 24 years later...
If you have any queries please let me know. And let me know which charts & time frames (bearing in mind, like most things, the higher the time frame the more reliable the signals).
DD
