Support resistance trading strategies - a comparison

Support/Resistance Trading Strategies

Himanshu Patil twitter : himanshugpatil

Copyright © 2009-2015 Proseon Technologies May not be

reproduced without permission

Support/Resistance Strategies

Support/Resistance Introduction Support/Resistance (manually drawn) Support/Resistance (automatic) Pivot Levels Fibonacci Retracements New Highs/Lows Using Risk/Reward Ratio in trading Support/Resistance Zones



Support and ResistanceResistance

Support

Price



Copyright © 2009 Proseon Inc. May not be reproduced without permission

Drawing Support/Resistance (the manual way)

Resistance Draw a line through as many highs as possible

without violating it (i.e. without a close above resistance)

Support Draw a line through as many lows as possible

without violating it (i.e. without a close below support)


Drawing Resistance


Drawing Support/Resistance (the manual way)

Resistance and Support change roles: Resistance when broken turns into Support Support when broken turns into Resistance

Hence, we can predict future Support/Resistance levels based on past levels

Drawing support/resistance: Draw a line through as many highs and lows as

possible with minimum violations


Drawing Support/Resistance

Determining the Strength of Support/Resistance

How many highs or lows does it touch?– The more the touches, the stronger it is.

Volume accompanied by break?– The stronger the volume, stronger it is.

How recent are the touches?– The more recent the touches the stronger it is.

How long is the support/resistance line?– The longer it is, the stronger it is.




Drawing Support/Resistance

Auto-Support/Resistance (the automatic way)

Investar uses Artificial Intelligence (AI) to draw support/resistance lines just like an expert TA would

Rate the lines based on:– No of touches– Recency– Length



Auto-SR Top 20 %ile - Very Strong

Support/Resistance Next 20 %ile - Strong Support/Resistance and so on…



Auto-SR options



Using Resistance & Support for Buying

Resistance

Support

Break of Resistance Close to Support



At start of new uptrend In a sideways trend

Using Resistance & Support for Selling

Support

Resistance

Break of Support Close to Resistance



At start of new downtrend In a sideways trend

Importance of various tools

Support, Resistance & Trendlines Technical Indicators Japanese Candlesticks

MORE IMPORTANT

LESS IMPORTANT



Support/Resistance Techniques

Support/Resistance (Manually drawn) Auto-Support/Resistance Pivot Levels Fibonacci Retracements New Highs/Lows




Pivot Points (Day-traders only)

Calculated based on OHLC Data. Today’s intraday levels based on

Yesterday’s OHLC data Pivot Point (PP) 3 Support Levels (S1, S2, S3) 3 Resistance Levels (R1, R2, R3) Valid only for intraday


Pivot Points


Pivot Points vs Auto-SR


Fibonacci Retracements Horizontal lines dividing vertical distance

between 2 endpoints of a trendline by Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% & 100%

How do you create them?– Use Fibonacci Retracements tool to draw a

trendline between two extreme points How do you use them?

– Fibonacci Levels indicate possible levels at which prices may retrace.

– Use only when you see them successfully working on some scrips in the past.


Fibonacci Retracements

HH*38.2%

H*50%

H*61.8%

H*23.8%


Fibonacci Retracements


Fibonacci vs Auto-SR


Pivot Points & Fibonacci Retracements Guidelines

Mathematically calculated Not based on actual supply/demand Only rational is that they work because

other traders use them Success rate will not be consistent and will

vary from scrip to scrip Test them well before using on any scrip When a software claims

Auto-Support/Resistance, ask them how it is calculated


New Highs/Lows Previous High as a resistance Previous Low as a support Long-term trader:

New 52-week Highs/Lows Short-term trader

New 8-week Highs/Lows New 15-day/5-day Highs/Lows

Intraday trader Above Previous Day’s High Below Previous Day’s Low


New High vs Manually Drawn

Risk/Reward Ratio Risk/Reward Ratio

– Maximum Profit/Stop-Loss Risk: maximum loss you can have. Reward: maximum profit you can have. 3:1 Risk/Reward ratio means:

– Reward is 3 times the Risk. High Risk/Reward minimizes your risk and

maximizes your profit. Widely used by professional traders



Risk/Reward Calculation Risk: maximum loss you can have.

– Usually the Stop-Loss– Depends on type of trade because your

expectation of gain is different based on type of trade

– Stop-Loss is set to keep Risk/Reward ratio > 3



Trader Type Ideal Gain Typical Stop-Loss

Long-Term > 50% 10%Short-Term 15-25% 5%Intraday 2-3% 0.5%

Risk/Reward Calculation



Risk/Reward Calculation Reward: maximum profit you can

have.– long trades (i.e. when you buy):

Profit = (nearest resistance – close)– short trades (i.e. when you short sell):

Profit = (close – nearest support) Risk/Reward Ratio

– Maximum Profit/Stop-Loss




Risk Reward Ratio

Support/Resistance Zones Nearby Support/Resistance lines can

be clubbed together to create a Support/Resistance zone.

Using S/R zones instead of S/R lines can improve accuracy



Using Support/Resistance Zones

Buying on breakouts/breakdowns:– Buy only if stock goes above upper

resistance in a resistance zone– Short Sell only if the stock breaks down

below lower support in a support zone Setting targets:

– Long (i.e. Buy): Use the lower resistance line in the resistance zone as a target

– Short (i.e. Short Sell): Use the upper support line in a support zone as a target Copyright © 2009-2015 Proseon

Technologies May not be reproduced without permission


Auto-SR


Auto-SR with SR Zones

Interesting Composite Scans for trending market

High Volume Breakout (at start of an uptrend):– Very Strong Resistance Breakouts– Volume Gainers– High Risk/Reward Ratio (Long)

High Volume Breakdown (start of a downtrend):– Very Strong Support Breakdowns– Volume Gainers– High Risk/Reward Ratio (Short)




High Volume Breakout - High RR

How can I get this feature?Auto-Support/Resistance,

Risk/Reward ratio & Stop Loss were released in FinBridge 2016 Mumbai and were also highlighted there.

Available as an addon in Investar 5.4



Liked Auto-SR? Follow us on twitter:@himanshugpatil@investarindia Tweet with hashtag #AutoSR Visit us on Facebook Visit our youtube channel:

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Support resistance trading strategies - a comparison

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