Support and Resistance

What are support and resistance? They represent a price point where selling and buying are at equilibrium. In the markets, sometimes there is more supply (sellers) than demand (buyers), and the price goes up or down accordingly. There are times when the price remains does really do either and plateaus, which is referred to as a price consolidation. This is a ‘pause’ in the price but still an important time in the markets, as we said, when buyers and sellers are in ‘check’. There are many possible reasons why the price would pause, then move away in a dramatic fashion, what comes next is when we have a great opportunity!

Role Reversal

In these areas where the price pauses  are ‘ Support and Resistance levels’.  These levels are often spoken about by commentators as either Support (a level below the current trading) or Resistance (a level above the current trading). Although this distinction is correct, we like to refer to our levels simply as Zones because a key trait of support and resistance levels is role reversal. As the saying goes, ‘Support becomes Resistance and Resistance becomes Support’, these levels will often interchange between their two roles, and it is key for trading success to be open to this phenomenon. It is also important to keep track of these levels even if we do not see price responding to them right away. It may take a great deal of time before price revisits these level but that is where opportunity lies.

Types of Support and Resistance

Most traders are aware of the many different types of support and resistance methods including moving averages, volume, pivots, Fibonacci levels, and elusive Elliot waves.  However, we feel that many of these methods are subjective to the viewer, and thus, should be used in conjunction with our zones as a basic building block.

Proactive support / resistance(S/R) methods are ‘predictive’. They often outline areas where price has not actually been. They are formed based on current price action that, through analysis, has been shown to be predictive of future price action. Examples of this are Fibonacci levels, and different kinds of wave theory

Market Profile

Reactive S/R are a result of price action or volume behavior. They include Globex high/low,  price swing highs and lows, open gaps, OHLC, and previous OHLC.

Both proactive and reactive support and resistance methods have merit, however, we have found that previous price action along with confirmation of confluence of zone and Fibonacci patterns have the amazing merit.

Thoughts for using the Advanced Price Action Zones

The APA Zones can be used in a number of ways to aid your present trading strategy. They can be used to tell you when to exit or partially exit a current position. A breakout from a  zone may be used to enter a new position or add-on to an existing position. Watching what happens when price enters a Zone may be indicative of taking a position or deciding to remain ‘flat’. If your strategy gives a buy signal, and the price is just below a zone, you may wait to see how the price reacts to the supply(resistance)  zone. There are many ways to augment your trade setups using the Advanced Price Action Zones.  This system all goes back to basic price action – we simply record what price has done in the past.

APA Bounce Counts

An important factor to remember when using our system is that each zone has a bounce count displayed for you  as price moves along. Zones will change color as they collide with price.   Zones that are freshly drawn and have not been re-tested by price are the strongest to take trades from.  Each time price revisits the zone and leaves it again in the same direction it came from, the weaker the zone gets.

Zones that are created  with the APA Zone software have a 98% chance of giving off one bounce.  However,  re-tests after the first bounce decrease significantly.

Some form of support and resistance is a core foundation of most profitable, technical, analysis-based trading strategies. As simple as the concept behind supply and demand might be, the practice can be difficult due to the wide range of information and techniques available. Our mission at On The Level Trading is to combine and condense this information for traders into a format that is easy to use and dynamic as market conditions change throughout the day.

Professional trading firms have teams of analysts working to do their ‘homework’ for them everyday. Now you can trade like a professonal, too, as APA Zones does so much of the work for you. We are committed to providing quality zones, in all time frames you want to trade, so you don’t have to spend your valuable time doing ‘homework’.