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Support/Resistance Trading Strategies
Himanshu Patil twitter : himanshugpatil
Copyright © 2009-2015 Proseon Technologies May not be
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
Copyright © 2009-2015 Proseon Technologies May not be
reproduced without permission
Support and ResistanceResistance
Support
Price
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Using Resistance & Support for Buying
Resistance
Support
Break of Resistance Close to Support
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At start of new uptrend In a sideways trend
Using Resistance & Support for Selling
Support
Resistance
Break of Support Close to Resistance
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At start of new downtrend In a sideways trend
Importance of various tools
Support, Resistance & Trendlines Technical Indicators Japanese Candlesticks
MORE IMPORTANT
LESS IMPORTANT
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reproduced without permission
Copyright © 2009 Proseon Inc. May not be reproduced without permission
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
them
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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.
Copyright © 2009 Proseon Inc. May not be reproduced without permission
Fibonacci Retracements
HH*38.2%
H*50%
H*61.8%
H*23.8%
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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
Copyright © 2009 Proseon Inc. May not be reproduced without permission
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
Copyright © 2009 Proseon Inc. May not be reproduced without permission
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
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Gap Up/Down (intraday)
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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)
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Drawing Resistance
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Drawing Support
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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
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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.
Copyright © 2009-2015 Proseon Technologies May not be
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Auto-SR Top 20 %ile - Very Strong
Support/Resistance Next 20 %ile - Strong Support/Resistance and so on…
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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.
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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
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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
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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
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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
Copyright © 2009-2015 Proseon Technologies May not be
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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
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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
below lower support in a support zoneCopyright © 2009-2015 Proseon Technologies May not be
reproduced without permission
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)
Copyright © 2009-2015 Proseon Technologies May not be
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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)
Copyright © 2009-2015 Proseon Technologies May not be
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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
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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!
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Liked Auto-SR? Follow us on twitter:@himanshugpatil@investarindia Tweet with hashtag #AutoSR
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THANK YOU
Thank You for Attending!
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