support resistance trading strategies

Support/Resistance Trading Strategies

Himanshu Patil twitter : himanshugpatil

reproduced without permission

Support/Resistance Strategies

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

Support and ResistanceResistance

Support

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

Pivot Points (Day-traders only)

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

Today’s OHLC data Pivot Point (PP) 3 Support Levels (S1, S2, S3) 3 Resistance Levels (R1, R2, R3) Valid only for intraday Test them on past data before using

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*61.8%

H*23.8%

Pivot Points & Fibonacci Retracements

Mathematically calculated Only rational is that they work

because other traders use them Success rate will not be consistent

and varies from scrip to scrip So, test them well before using on

any scrip

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

Gap Up/Down (intraday) Due to imbalances of Buying & Selling

pressure Gap Up – Absence of sellers Gap Down – Absence of buyers Inside Gap

Open above previous close (Gap Up) Open below previous close (Gap Down) More likely to fill during the day

Outside Gap Open above previous high (Gap Up) Open below previous low (Gap Down) Creates a stronger intraday support/resistance

Gap Up/Down (intraday)

Drawing Support/Resistance (the manual way)

Support Draw a line through as many lows as possible

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

Resistance Draw a line through as many highs as possible

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

Drawing Resistance

Drawing Support

Drawing with Auto-RS

Auto-Support/Resistance (the automatic way)

Use Artificial Intelligence to draw lines that are touching the maximum number of lows and highs

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

Determining the Strength of Support/Resistance

How many peaks or troughs 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.

Auto-SR Top 20 %ile - Very Strong

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

Auto-RS levels

Tips for using Auto-SR Keep the default settings – scans are done

using the default settings Make sure your chart duration has the

number of bars that you have selected in Tools->Options. E.g., if you have 240, then you should have at least a one year duration.

Risk/Reward Ratio 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 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

What timeframes to use? Long-Term Traders (Holding Period > 6 mos)

– Use Daily and Weekly charts. Short-Term Trader (few days < Holding Period <

3 wks)– Use Daily and 1-hr charts

Intra-Day Trader (Holding Period < 1 day)– Use 1-hr and 15-min OR– 30-min and 5-min OR– 15-min and 3-min

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

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

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

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

Interesting Composite Scans for trending market

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

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

Interesting Composite Scans for sideways market

Buy in Sideways trend – Ensure it is sideways trend– Near Strong Support– High Risk/Reward Ratio (Long)

Sell in Sideways trend – Ensure it is sideways trend– Near Strong Resistance– High Risk/Reward Ratio (Short)

How can I get this feature?Risk/Reward ratio will be

released in Investar Beta soon Investar Beta can run

simultaneously with Investar 5.1

Feedback We need your feedback (it is still not

late)! Within the next 2 weeks, we will end

the Auto-SR Beta and release it as Auto-SR addon in the next release of Investar

Top 3 feedbacks/suggestions will get the Auto-SR addon for free for the remaining part of their subscriptions!

Liked Auto-SR? Follow us on twitter:@himanshugpatil@investarindia Tweet with hashtag #AutoSR

THANK YOU

Thank You for Attending!

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