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Beginner - Support / Resistance Question

Dear all, I've recently joined t2w in a bid to improve my spread-betting skills. I know the basics of the business, various strategies, technical skills and have placed about a

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قديم 20-09-2011, 10:51 PM
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تاريخ التسجيل: Sun Sep 2011
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افتراضي Beginner - Support / Resistance Question

Beginner - Support / Resistance Question

Dear all,

I've recently joined t2w in a bid to improve my spread-betting skills. I know the basics of the business, various strategies, technical skills and have placed about a hundred trades over four years, but I would still call myself a very amateur trader.

Aside from introducing myself I had a Question that I would like opinions on. It's about Support and Resistance and how arbitrary most "support" and "resistance" points are. The reason I say this is that, despite the work I put into investigating a trade, entry points and placing stops, support and resistance lines have only very exceptionally ever actually held true. In all markets I have bet on, be it individual shares, indices, currencies and commodities, I find the price shoots through supposed "support" and "resistance" lines as if they weren't there.

This got me to thinking about them and I've come to the following conclusion (hence my question). I've used a real life example but it affects all markets. This question is based on the fundamental premise that 'traditional' support and resistance appears when the market decides, for example, that £2 is too low for a particular share, so they buy at £2, and support forms around £2: -

Question / Example - The EUR/USD was rallying earlier this year when Ireland said that it would take financial assistance from the EU. The EUR/USD subsequently rallied from about 1.3500.

For the sake of argument let's say that the Euro continued to rally and then for various reasons (Greece etc) it starts to fall.

Won't analysts and traders make the mistake of looking at the previous low of 1.3500 (which looks like a big bounce) as a support line, rather than the truth, in that it just happened to be the point at which news of Ireland accepting monetary assistance came out?

If Ireland hadn't come out and said yes to monetary assistance until a week later, who's to say that the rally wouldn't have occured from 1.3000 or lower?

In this respect, doesn't that mean that most 'support' and 'resistance' are simply illusory, in that they are simply a reflection of breaking news at the time, and in fact the only true supports/resistances are when there is NO specific news (or very little given, our 24hr media environment) and the markets decide to move a share/currency on their own, simply by buyers outweighing sellers or vice versa.

In addition to my overall question, in true quiz style, I have the following statements, which I believe to be true: -

(a) When a genuine (and random) news story causes a reversal in the market, the point at which the market turns is arbitrary and is not a genuine support/resistance line.

(b) The next time the EUR/USD approaches 1.3500 (for example), all will be forgotten about what caused the turn and Ireland accepting assistance, and a market-esque self-fulfilling prophecy will occur whereby 1.3500 becomes a support.

(c) The media and analysts will often 'create' reasons for why something happened (e.g. "weakness in the US employment numbers today caused gold to increase"), when in fact it is the market who is making the moves happen, such as traders buying gold simply because it's going up!

All this, if true, would prove to me why I've yet to see support or resistance lines hold up. I have tried tight stops and far away stops, it matters not.

Thanks for your opinions on this matter.

Cheers,

Tommygun66
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