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Support/Resistance & Demand/Supply
Trading S/R & D/S
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Pepe le Pip
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January 26, 2014 - 21:29
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Hello Theo,

In video 2 and chapter 6 of the eBook, you say you make a  distinction between a support/resistance level and a demand/supply level. Do you trade them differently?

 

Pepe

Without you (price action), I am not worth a [s]cent.

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January 26, 2014 - 23:37
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Hi Pepe,

I view them both as areas of potential order flow and they are treated the same. 
The distinction between the two verbally is a way to discuss each type of order flow potential.

Supply/demand types of area will always be more likely during trends though.
You can also think of it in layers though, let's use the H4 chart as an example.
A swing high/low on the h4 chart will also be support/resistance on the h4 chart.
supply/demand on that same h4 chart is really just the same thing on the M30 chart though.
So it all ends up being the same thing on different scales.

This article may also help you understand this concept in case you haven't read it already:
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February 9, 2014 - 18:29
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Hello Theo,

Old levels vs. recent levels.
Some authors/educators claim that if a support/resistance level has a history of having acted as support and/or resistance, it makes the current level stronger, more significant, and therefore more likely to influence price.

Please refer to attached image. From yours and ElectroFX's perspective, does historical resistance at 'a' make the current support level at 'b' stronger or more significant? 

Again, some authors/educators suggest the market/chart has a memory, in some cases a very long memory, and that an untested level, is still valid even if years old. Others suggest the market does have a memory, but that it is short-term and relative to the time frame being traded.
I have read, and you have mentioned the same thing, that professional traders are focused on levels at which they will buy/sell. From my reading, I get the impression that professional traders are only concerned with recent significant levels, along with what is happening now (the present). I acknowledge that certain levels, such as all-time highs/lows can be quite old and yet still be significant, but I question the validity of the view that very old levels on, for example, a four-hour time frame should still be considered significant.

How old is too old before you determine a level is no longer significant and or, no longer in play?

Pepe.

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February 9, 2014 - 19:17
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Hello Theo,

Strong levels vs. weak levels.

In some technical analysis readings, it is suggested that the strength of a level can be determined by how many times it is tested and held. Interestingly, there is an opposing view that says that a level gets weaker because each test reduces the residual buy/sell orders at that level. How price behaves when approaching and leaving a level can also determine the strength or weakness of a level.

Do you treat all support/resistance & supply demand levels equally in terms of being a potential obstacle (or profit target), or do you recognize levels as being stronger or weaker than others? As an example, in the attached image, '1' is the origin of three scales of waves,  '2' the origin of two scales of waves and '3' the origin of one scale of waves. Should we make a distinction between the marked areas when initiating a trade or in managing an open trade?

In the e-book, page 36, section 6.3; you say, "We would Take Profit when we reach an opposing area of Support/Resistance or Supply/Demand." Is that relative to the wave being traded?

In the attached image (ignoring for the moment that we would be fighting a down-trend on two scales), the black waves have given us a 3PT, but price has not yet moved far enough to confirm the turn of the yellow wave. Would you look to the level marked '3' as the first obstacle, or would you take the level marked '2' because we are trading the potential turn of the yellow wave?

If price had moved far enough to confirm the turn of the yellow wave, but not far enough to have hit the level marked '3', would you aim for the yellow wave resistance '2' and ignore the black wave resistance '3' or would you remain aware of '3' and actively manage the position as price approached '3'?

In terms of risk to reward, do you always use the closest obstacle, irrespective of scale, to determine if a one-to-one minimum exists in order to get the green light to take a trade?

Please forgive the length of the these two posts. Just when I think I've understood something, I come across a chart or price behavior that has me sitting here saying, "what should I do here?" Linda Raschke says, "if ever you find yourself in the position of asking 'what should I do', don't take the trade (or get out if in a trade) as a fuzzy entry will lead to fuzzy trade management and an equally fuzzy exit."

Pepe.

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Without you (price action), I am not worth a [s]cent.

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February 9, 2014 - 23:37
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Pepe said
Hello Theo,

Old levels vs. recent levels.
Some authors/educators claim that if a support/resistance level has a history of having acted as support and/or resistance, it makes the current level stronger, more significant, and therefore more likely to influence price.
Please refer to attached image. From yours and ElectroFX's perspective, does historical resistance at 'a' make the current support level at 'b' stronger or more significant? 
Again, some authors/educators suggest the market/chart has a memory, in some cases a very long memory, and that an untested level, is still valid even if years old. Others suggest the market does have a memory, but that it is short-term and relative to the time frame being traded.
I have read, and you have mentioned the same thing, that professional traders are focused on levels at which they will buy/sell. From my reading, I get the impression that professional traders are only concerned with recent significant levels, along with what is happening now (the present). I acknowledge that certain levels, such as all-time highs/lows can be quite old and yet still be significant, but I question the validity of the view that very old levels on, for example, a four-hour time frame should still be considered significant.
How old is too old before you determine a level is no longer significant and or, no longer in play?

Pepe.

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In this image I would not consider  'a' to mean anything at the time of 'b' because it had been broken too many times. The market does have a kind of memory because price never seems to react anywhere for no reason. You may not see it at the time but it's a good exercise to understand why every move occurred even if it is in hindsight. This will help train your eyes to see it ahead of time.

An untested level also means not broken though, like in your image. I always think of untested areas as the first time back to an area above and to the left of price, below and to the left of price, or the first time back to a mirror flip area. The only exception is the split double tap which can't be old and must be very fresh as it is in the nature of the pattern anyway. Trying to keep track of more than that I find a complication that doesn't do much for you at all.

The age of the first time back to an area above and to the left of price, below and to the left of price doesn't really matter, it just matters that it is the first time re-testing the area, there was order flow there once before and you are looking to see if there is any left. Another important factor is how hard and how fast price reacted from an area as it shows that there was ALOT of order flow there last time and you could anticipate at least half of that same reaction upon the first retest.

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February 9, 2014 - 23:56
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Pepe said
Hello Theo,

Strong levels vs. weak levels.

In some technical analysis readings, it is suggested that the strength of a level can be determined by how many times it is tested and held. Interestingly, there is an opposing view that says that a level gets weaker because each test reduces the residual buy/sell orders at that level. How price behaves when approaching and leaving a level can also determine the strength or weakness of a level.
Do you treat all support/resistance & supply demand levels equally in terms of being a potential obstacle (or profit target), or do you recognize levels as being stronger or weaker than others? As an example, in the attached image, '1' is the origin of three scales of waves,  '2' the origin of two scales of waves and '3' the origin of one scale of waves. Should we make a distinction between the marked areas when initiating a trade or in managing an open trade?
In the e-book, page 36, section 6.3; you say, "We would Take Profit when we reach an opposing area of Support/Resistance or Supply/Demand." Is that relative to the wave being traded?

In the attached image (ignoring for the moment that we would be fighting a down-trend on two scales), the black waves have given us a 3PT, but price has not yet moved far enough to confirm the turn of the yellow wave. Would you look to the level marked '3' as the first obstacle, or would you take the level marked '2' because we are trading the potential turn of the yellow wave?

If price had moved far enough to confirm the turn of the yellow wave, but not far enough to have hit the level marked '3', would you aim for the yellow wave resistance '2' and ignore the black wave resistance '3' or would you remain aware of '3' and actively manage the position as price approached '3'?

In terms of risk to reward, do you always use the closest obstacle, irrespective of scale, to determine if a one-to-one minimum exists in order to get the green light to take a trade?

Please forgive the length of the these two posts. Just when I think I've understood something, I come across a chart or price behavior that has me sitting here saying, "what should I do here?" Linda Raschke says, "if ever you find yourself in the position of asking 'what should I do', don't take the trade (or get out if in a trade) as a fuzzy entry will lead to fuzzy trade management and an equally fuzzy exit."

Pepe.

** Register Here for Free Membership to see this image/link **

 

I prefer to observe all areas and let my entry triggers and the structure of how we arrived there show me which ones are holding, and also the overall structure will help me with my target expectations, an obstacle is an obstacle though and I never both aiming past the 2nd, that's just my conservative style I guess. This is more of a price action confluence approach as opposed to just looking at support and resistance. 

The fastest scale on my chart is used as an entry trigger and not looked at for areas. In your above chart; the only exception is when targeting a LL on the yellow for example you may find a black line area below and to the left of price that makes sense based on the momentum of the yellow line.

So yes, opposing SR for targets is relative to the wave scale being traded but momentum is also considered, so your next question is also answered here and if you did buy that 3PT then "2" would be the first obstacle.

To answer the rest of your questions I will pose a new situation. What you have in your image here is a counter-trend trade, that's counter-trend on the yellow line because the black is your trigger line, the yellow is your trading scale, and the purple you are observing for structure. In order to take that counter-trend trade safely it would have to be a great location based on the structure of the purple line, a safer approach would be to let it react as it has and then wait for the 3PT or DT on the yellow line to begin to form using the black line to get in to it. IF you did that; you would be able to consider obstacle 1 and 2 and expect a higher high, check momentum and shoot as far as the evidence shows you is probable, and make sure the RR is 1:1 or preferably higher.

When you trade you should have no doubts or questions in your mind, you should be acting like a robot and have an answer to every situation. I always tell everyone, "when in doubt, stay out"

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