Support and Resistance Indicator

Our definition of support and resistance is unique. We look for the price levels we expect the market to return to and breach.

Support is a price level we expect the spoos will drop to and exceed before moving back up.

Resistance is a price level we expect the spoos will rally to and exceed before moving back down.

The Trader can fully expect that as the market moves closer to the respective line it will also move beyond the line before changing direction. Therefore, unlike normal support and resistance level that are not expected to be breached, we use these levels as targets we fully expect will be breached. The advantage is that if you were looking to exit a trade on a typical support resistance level, often these levels never are reached and the trader becomes frustrated. Our levels are quite different. The Trader can have high confidence these levels will be reached and exceeded the closer the market comes to the associated price. Similarly if the Trader was looking to enter a trade at normal resistance levels, the market may never reach it and the trader may lose an opportunity. On the other hand once our levels are reached and exceeded the probability increases that he can enter the desired trade safely.

This chart is a 700 tick bar chart plotting our proprietary support and resistance lines. The resistance lines in yellow and the support lines in cyan. The number of lines is related to the tick bar interval that is being plotted. The shorter the interval the more lines will be created.

Notice the same chart is a 500 tick bar chart with a greater number of lines.

Of course not all lines will be breach on any particular day. But as the market moves close, the probability does increase that the line will be breached. Nothing is fool proof. A good example of how well this works is shown on this day. If at the low of a move a cyan line was created, then likely the market will move back down allowing for a short trade. Consequently, if the market rallied up thereafter breaching resistance lines, shorting the market thereafter back down to the cyan line or lower made for successful trading. Notice the brief rally into the high at 14:36 was followed by a predictable short below 802.25 where the previous cyan line was created.

This group reversal chart is based on a 12000-22000 tick interval using bollinger bands as an additional filter. Notice the yellow line from the left which represents the resistance line that originated after 13:49 pm. There was a group reversal just below the resistance line, but only after the resistance line was breached did the market actually reverse which is exactly the point we try to make with our support and resistance lines.